Everything You Know About the Markets is Wrong

What’s striking about the accepted truths of our time is that they are, for the most part, unsubstantiated by the facts.

Alastair Kellett 13 February, 2013 | 10:26AM
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Casual observers of financial markets are these days likely to have formed a fairly clear view of things. Common perceptions are that stocks have never been as volatile and dangerous; that the good times are behind us and we should all learn to live with much lower returns in our portfolios; and that physical gold is the only thing we can really call a safe investment anymore. What’s striking about the accepted truths of our time is that they are, for the most part, unsubstantiated by the facts.

One of the best performing asset classes of 2012 was Greek government bonds. Think about that, in the context of everything you read throughout the year.

The period after the global financial crisis of 2007-2008 has been unshakably thought of as a “new normal” environment of lower expected returns on risky assets. In reality, it’s been one of the strongest periods of equity performance in many market participants’ entire careers. By February 2012, the S&P 500 had a trailing three-year cumulative return of 97.9%, albeit as a result of bouncing back after the crushing losses from the crisis. In the last 40 years, the only times we’ve seen comparable gains were the go-go days of the mid ‘80s and the nosebleed-inducing highs of the dotcom bubble of the late ‘90s. Any investor that shunned equities in 2009 because of their “new normal” lower return expectations did so to very harmful effect. The sentiment is reminiscent of a Businessweek cover story “The Death of Equities” famously published in 1979, shortly before a 20-year bull market in stocks.

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About Author

Alastair Kellett

Alastair Kellett  is an ETF analyst with Morningstar Europe.