Past performance doesn’t guarantee future returns. But studying past performance is what gave Wharton School finance professor Jeremy Siegel hope during the darkest days of the downturn.
Siegel, known for his best-selling book “Stocks for the Long Run,” recently told a Denver audience in his first “post-crisis” talk that stocks still have room to run.
A dollar invested in the U.S. equity market in 1802 was worth $607,279 at the end of 2009, Siegel told about 370 people gathered for the annual forecast dinner of the CFA Society of Colorado last week.
By contrast, a dollar invested in corporate bonds would have grown to $1,400. Treasury bills, the investment of choice during the crisis, would have generated $300 in return, while gold, preferred by those fearful of inflation or a collapse, would have returned $3.17.
Inflation would have taken that $1, left alone, down to 6 cents, Siegel said.
Stocks can be volatile in the short term, but they have consistently outperformed other asset classes by a wide margin in the long run.
So why did investors abandon equities en masse in 2008 and early 2009?
“People can’t stand the downturns,” Siegel said. “They have visions everything will go to zero.”
Two brutal bear markets took U.S. stocks from a record overvaluation in March 2000 to severely undervalued in March 2009, Siegel said.
Stocks have since rebounded but remain below the long-term trend based on a real return of 6.6 percent a year. And they have lagged the return in government bonds for the past decade, something that rarely happens.
“The long-term risk in Treasurys is greater than the long-term risk in equities by a large margin,” Siegel said.
He says that emerging economies, known for commodities and manufacturing, will help drive innovation.
In the short term, performance will be tied to corporate earnings, which Stuart Schweitzer, managing director of global investments at JP Morgan, predicts will rise as consumers start spending again.
“I think we are finally going to see job growth in the next couple of months,” he said Wednesday on a visit to Denver.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
