Buy and hold is not dead
Alliance Bernstein's Kurt Feuerman says it's only a matter of time before institutional investors rediscover the benefit of equities.
by Kurt Feuerman on Dec 11, 2012 at 14:43
It seems that rumors of the death of long-term equity investing have been greatly exaggerated.
That the rumors exist is hardly surprising. There are still significant risks facing the market, the 2000s were an underwhelming decade, and investors still feel the pain of the 2008–2009 selloff and the effects of the volatility that followed it.
Stocks have made plenty of headway since that low point, though, and based on our assessment the prospects seem bright.
But if there are better times ahead for stocks, how many investors will be around to see them?
Individual and institutional investors have been cutting exposure to equities and other risk assets for years. This de-risking took place as stock valuations were declining.
For example, the price-to-earnings ratio of the S&P 500 Index at the beginning of the 2000s was about 30; now, it’s 15. There were many reasons for the equity downsizing, but the bottom line is that investors were shedding stocks as stocks were actually getting cheaper.
These investors haven’t taken part in the post-crisis rebound—as long-term buy-and-hold investors have. Including 2012, US equity markets have risen for four straight years. As seen in the display below, the S&P 500 Index even reached an all-time high in August 2012.
It wasn’t the better-known S&P 500 price index that set the mark, but the total-return version that includes dividend payments and their reinvestment. In other words, a benchmark that’s more relevant to long-term investing reached an all-time high.
There didn’t seem to be much mention of this in the financial media, which remained preoccupied with macro and political concerns.
US stock performance: Click to enlarge
Despite the lack of attention, it seems hard to fathom that buy and hold is dead.
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