The Death of Equities – 33 Years Later

Does this sound familiar?

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The 33rd anniversary of the Business Week article “The Death of Equities” went unnoticed by the financial press and mainstream media.

The article was published on August 13, 1979 when the Dow Jones Industrial Average (DJIA) closed at 875. The DJIA began the decade at 800. The article stated: “This ‘death of equity’ can no longer be seen as something a stock market rally—however strong—will check. It has persisted for more than ten years through market rallies, business cycles, recession, recoveries, and booms.” Does this sound familiar?

The DJIA closed at 12,880 mid-year (June 29, 2012) and began the last decade at 11,357 (January 3, 2000). Many are calling this period “the lost decade,” which prompted the Financial Times to write: “Stocks have not been so far out of favor for half a century. Many declare the ‘cult of the equity’ dead.” What are investors to do? The advice from Business Week in 1979 was: “Today, the old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared.” Later the article stated: “We have entered a new financial age. The old rules no longer apply.”

Had we really entered a new financial age? Were stocks no longer the cornerstone of one’s savings and retirement? Since that article was published, the DJIA is up 14 fold, providing a compounded annual return of 8 ½% without counting dividends. This fact has not stopped the Financial Times from writing recently: “Few people doubt, however, that the old cult of the equity—which steered long-term savers into loading their portfolios with shares—has died.”

It is amazing how cyclical the financial markets are and yet few people recognize this and confidently state, “This time is different”. We are not trying to predict the direction of the market. We do believe that broad diversification and proper asset allocation (that includes equities) is the right cornerstone for one’s life savings and retirement. It was on August 13, 1979.

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