Stocks still attractive in aggregate
From Pru:
"- As we showed in a 2005 note, “Buy Low, Sell High,” the current valuation of stocks and bonds has been a sensible and reliable indicator of future returns over the past 6 decades.
- In this piece, we update those findings and find that the higher returns obtained from buying low have not required investors to take higher risks, as measured by the standard deviations of returns.
- Said another way, investors have been able to use valuation to identify assets with an attractive risk/return trade off.
- At today’s valuations for stocks (a trailing earnings yield of about 6%, a forward yield of about 6.5%) and 10-year Treasury bonds (yield under 5%), stocks have offered a far superior risk/return combination.
- At these valuations, the downside risk of stocks has been about the same as bonds, with much higher maximum historical upside.
- Of course, past performance is no guarantee of future results, and the note contains several important caveats.
- But we suspect that investors who buy on autopilot, adding bonds and selling stocks as they age regardless of valuation might actually be adding to their risk of falling short of financial goals."
I agree with all of this although there are some sectors that I don't like such as energy, utilities and housing/mortgage related equities. I also don't like Chinese stocks in general.
"- As we showed in a 2005 note, “Buy Low, Sell High,” the current valuation of stocks and bonds has been a sensible and reliable indicator of future returns over the past 6 decades.
- In this piece, we update those findings and find that the higher returns obtained from buying low have not required investors to take higher risks, as measured by the standard deviations of returns.
- Said another way, investors have been able to use valuation to identify assets with an attractive risk/return trade off.
- At today’s valuations for stocks (a trailing earnings yield of about 6%, a forward yield of about 6.5%) and 10-year Treasury bonds (yield under 5%), stocks have offered a far superior risk/return combination.
- At these valuations, the downside risk of stocks has been about the same as bonds, with much higher maximum historical upside.
- Of course, past performance is no guarantee of future results, and the note contains several important caveats.
- But we suspect that investors who buy on autopilot, adding bonds and selling stocks as they age regardless of valuation might actually be adding to their risk of falling short of financial goals."
I agree with all of this although there are some sectors that I don't like such as energy, utilities and housing/mortgage related equities. I also don't like Chinese stocks in general.
posted by Never-Limp at 6:38 AM
0 Comments:
Post a Comment
<< Home