Is investing dead? Peter Cohan writing at Forbes thinks so. He thinks the only way to make money in this environment is to be sell short “companies poised for bankruptcy.” Cohan lists five reasons why investing, i.e. owning assets that will reliably outpace inflation, is dead including:
Stocks down. The S&P 500 has fallen 1% so far in 2011, not exactly a spectacular performance. And in the last five years, the S&P 500 has lost 13% of its value. To be fair, it’s easy to pick a period for which stocks are up — 10 years ago, the S&P 500 was 9.2% lower than it is today — but that’s an underwhelming 0.7% annual growth rate.
However this perspective may be too narrow. In contrast if you look at an equal-weight version of the S&P 500 over the decade its performance was much better. In short, small caps outperformed large caps. Many large cap stocks spent the decade working off overvaluation earned during the Internet bubble. Other asset classes outperformed US equities. In a Bloomberg article, Rob Arnott of Research Affiliates LLC is quoted:
It was only a lost decade if you anchored on equities as your core holding and you relied on cap-weighting..It was a lost decade for most investors, but it didn’t have to be.
A broader focus is one thing that James Picerno at Capital Spectator has been examining for quite some time. In an article he talks about how in asset allocation investors should be cost-conscious and risk-aware. He writes:
The idea that you can do quite well by diversifying across asset classes and applying some simple risk-management techniques like rebalancing is hardly a secret. For example, take a look at the competitive results of Paul Farrell’s Lazy Portfolios.
This sort of approach provides investors with a means of capturing the returns from the global capital markets in a systematic fashion. Unfortunately many investors likely feel that Cohan is correct and have thrown up their hands in disgust and have given up on investing.