My hunch is that it will once again become fashionable to invest in stocks that actually pay dividends. What do you think of that prediction?
Disclaimer: Mostly off-topic discussion follows...
Snowshoe, I've been traveling on business, etc. and am just now catching up on the thread; hence, the late reply. I thing you're right about dividend stocks becoming more popular. It will be interesting to see what happens over the next few years once this recent dose of market reality gets incorporated into our ("baby boomers") collective psyche. I read an article today that quoted an analyst as speculating that stock appreciation for about the next decade would likely slow to around 5% in order "to revert to the mean" after the excessive appreciation in the '90's. I'm not sure I completely buy this due to: 1) the "baby boomer" effect and 2) the effect of 401K's, IRA's, etc. replacing company pensions as the primary private vehicles for providing retirement income. Regardless of current stock market trends, etc., baby boomers are not likely to stop saving for retirement. We simply don't have a choice since, for most of us, it's our only option. Thus, per-capita, inflation-adjusted dollars will continue to flow into investments at a greater rate than in the past thereby driving up the price. What may very well change, however, is the types of assets those dollars flow into. (E.g., a couple of years ago, my financial planner talked to me about diversifying into real estate by purchasing some REITs. After the past 12 months stock debacle, that sort of diversification now appears more attractive.) What I expect over the next decade is more volatility than has traditionally been the case as investors' dollars rotate into whatever type of asset is in vogue at the time. We've been through an S&P Index fad a tech fad, etc. What will be next fad? Who knows? (Perhaps investors' will be spooked from stock equities for a while and start buying REITs.) At some point, equity appreciation may revert to the pre-90's mean, but I suspect that won't happen until the next decade (perhaps because the boomers switch from investing retirement funds to withdrawing retirement funds). If it does happen, though, I expect the standard deviation will be much higher that pre-90's norms giving us a bumpier ride.
Probably the main investment lesson this last year has taught me is to pay attention to valuation. Even if a company/asset class/stock indices is sound long-term, it's not a good investment if it's too expensive. Companies/asset classes/stock indices become overprices whenever they become faddish. Investor's who pay attention to the macro-level investing fads while, at the same time, keeping an eye on valuations will likely be rewarded. Warren Buffet appears much more sage-like than he did last year about this time...
BTW, I do agree that administrations can indeed affect markets by their tone. However, I think the recent criticisms from the media about Bush's statements on the economy are somewhat overblown. It was becoming quite clear even before Bush took office that we might be heading into a downturn. No administration can rescind the economic cycle, and, unfortunately, whenever we have a downturn, the American people tend to blame whoever is in office at the time. Usually, this is unfair. By being candid and pointing out that choppy waters might be ahead, Bush may have accomplished at least these two things: 1) Made it harder (hopefully) for Americans to blame him for a downturn that was already in progress when he took office and 2) Made it easier to get his tax plans, social security reforms, etc. through Congress. No doubt, those statements had an effect, to some degree, on American's moods. If one believes that the Bush proposals will be good for the economy long-term they're likely to believe Bush should have been candid, since the long-term results will offset any short-term negative effect in consumer/investor psyche. On the other hand, if one believes Bush's proposals will not be good for the economy long-term, they're more likely view Bush's statements as compounding his errors.
Unfortunately, the most significant effects of many government economic policies are often not realized until long after that administration's/Congress's policies were implemented. Often this results in misplaced credit or blame. |
