Mon, 28/01/2013 - 06:23
There are fundamental reasons why the typical investor should be in a buy-and-hold posture with stocks, or better yet, selected exchange-traded funds, says Selwyn Gerber, founding partner of RVW Investing, a wealth management firm that advises private individuals and pension funds.
"We leave speculation to those guided by tarot-card readers and the Wall Street marketing machines," says Gerber (pictured). "The average investor, in contrast, must take a long-term, dispassionate view of his goals."
Gerber lists seven key conclusions by the RVW Investment Committee which underpin its bullish outlook:
1. Corporate earnings are currently strong. Ultimately, prices are determined not by the passions of fear and greed (AKA bear and bull markets) but by the profits a business earns.
2. Corporate earnings in selected enterprises will strengthen as they continue to expand integration of technology, information systems and just-in-time techniques into their methodology. Additionally, the economy is now gradually growing through the natural recuperative powers of free market capitalism and the inevitability of business cycles.
3. The rush out of equities will reverse itself as the global and domestic uncertainties gradually get resolved. Markets eschew uncertainty but can generally cope even with bad news, once digested.
4. The plunging price of natural gas will lead to a manufacturing boom in the USA that has already started and will accelerate. Gas is a significant factor in the cost component in almost all heavy manufacturing. This will give the US an increasingly significant comparative advantage.
5. For most, the rush into hedge funds has been very disappointing. The widespread realisation is that, for most investors, the class of "alternatives" has not worked out well. The S&P 500 has now significantly outperformed its hedge-fund rival for ten straight years, with the exception of 2008, when both fell sharply. Additionally, 35 per cent of the hedge funds that existed 10 years ago either imploded or lost substantial sums.
6. Successful businesses are themselves proven inflation hedges. Given the debasement of currency currently taking place on an unprecedented scale, planning for inflation must be a given. Most of the larger companies can pass through the increased costs to their customers and continue to build their profits. In addition, these enterprises own assets that appreciate in inflationary times.
7. At this moment, equities are a bargain - by all objective and historical measures. While not all observers share this upbeat attitude toward market movements, Gerber emphasises that the key is to find good companies - or preferably ETFs - and hold them long term.
"Forget the tortoise and the hare," says Gerber. "In real life, the bulls always win."
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