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As Winston Churchill once said: “A pessimist sees the difficulty in every
opportunity; an optimist sees the opportunity in every difficulty” and in that vain I challenge all readers to fight off the negativity, see long-term opportunity in global equity markets and, most importantly, remain invested. Your future self may thank you. Words: 732; Charts: 6
So writes Frank Holmes (www.usfunds.com) in edited excerpts from his original article* entitled Invest In Equities: Your Future Self May Thank You.
This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Holmes goes on to say in further edited excerpts:
With the barrage of negative headlines and abhorrence toward risk many investors [have been of the opinion] that equities would not improve going forward but that has turned out to be a mistaken belief:
- Since the beginning of 2009 through the end of 2012, gold had a cumulative total return of nearly 90%.
- The S&P 500 Index has had a dramatic climb, as well, with a cumulative return of more than 70%.
- In comparison, the iShares Core Total US Bond ETF increased only 22% on a cumulative basis over the same time frame.
Stock and gold investors should thank President Barack Obama and Federal Reserve Chairman Ben Bernanke for these phenomenal results, as the Fed has been on a massive bond-buying frenzy during its three rounds of quantitative easing and Operation Twist. This spree has pushed the central bank’s balance sheet to nearly $3 trillion, reports the USA Today. The newspaper says this is “more than three times the size of the Fed’s holdings before the financial crisis” in the fall of 2008.
All this excess money in the system, compliments of Helicopter Ben, has helped the S&P to rise over the past U.S. presidential cycle. As you can see, Obama’s presidential cycle beat the average of all other presidential cycles going back to 1929.
The bad news is that many investors have not been participating, as they have acted on the belief that negative short-term headlines equate to dismal long-term equity performance yanking billions of dollars out of the perceived “risky” equity funds into purportedly safe havens, such as Treasuries and bond funds. The chart below shows the continuation of this extreme behavior since 2006.
In the media’s duty to report risks facing the average investor, some reporters seemed to have overlooked what I believe to be the greatest threat. As Bloomberg only recently quantified, “Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years”..
Just this week we received an olive branch indicating that the bond fund flows may be receding and reverting back to equity funds. CNBC reports that during the week ended January 9, $22 billion flowed into long-term equity mutual funds and exchange-traded funds, according to data from Bank of America Merrill Lynch. This amount “was the second-highest amount on record,” writes CNBC.
One week of data, though, does not make a trend. Research shows that retail investors may continue selling their U.S. equities through 2013. According to Goldman Sachs, an estimated $475 billion is expected to leave stocks. On the bright side, the “smart money” – corporations who are engaging in mergers & acquisitions activity as well as buying back shares of stock – are expected to purchase $450 billion, says Goldman Sachs. In addition, institutional investors, including mutual fund companies, foreign investors, ETFs, life insurance companies and pension funds, are expected to put an additional $225 billion into the U.S. equity market in 2013.
Over the past year, gold stock investors have been fleeing the sector after seeing declining returns throughout the year. As of December 31, 2012, the FTSE Gold Mines Index declined nearly 14 percent over 2012. We’ve seen this pattern before, as gold stocks have historically performed poorly during a U.S. presidential election year. This is data going back nearly 30 years.
However, the math suggests gold stocks may stage a significant comeback during 2013. Historically, during post federal election years, the Philadelphia Stock Exchange Gold and Silver Index has seen significant gains. [Read: Gold Stocks Go Up Dramatically In Inauguration Years – Will Another +20% Increase Occur This Year?]
Conclusion
…Investors’ misconception about future stock returns underscores why I frequently point out cyclical patterns and seasonal cues. I believe these trends help investors anticipate the performance of global markets and commodities before participating.
As Winston Churchill once said:
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
For the new year, I challenge all readers to fight off the negativity, see long-term opportunity in global equity markets and, most importantly, remain invested. Your future self may thank you.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.usfunds.com/investor-resources/investor-alert/invest-in-equities-your-future-self-may-thank-you/
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