why rely on any form of long-only investing -- even his active value investing -- if we are in for possibly another decade like the last one? How did long-only value investing fare in 2000-2002 or 2007-2008? How will it fare when the current cyclical bull rally inevitably leads to another cyclical bear correction?
Monday, January 11, 2010
"Welcome to another lost decade"
Vitaliy Katsenelson recapitulates his secular range-bound market thesis on GuruFocus today ("Welcome to another Lost Decade"), this time with a slight twist: he thinks a 1990-? Japan-style bear market is also a possibility going forward. As I noted in the comments there, Katsenelson's diagnosis makes sense, but his prescription ("active value investing") seems limited:
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I totally agree with the secular bull market and secular bear market distinctions and suspect we've a ways to go before we enter the next secular bull market.
If history is any guide, valuations will have to get a lot lower for a longer period of time before the next sustainable secular bull arrives.
But I disagree that such a reality negates the benefits of long term investing in individual high quality companies.
It's only a "lost decade" if you're betting on both earnings growth and a P/E expansion of the entire market in order to get rich via capital gains.
In contrast, dividend growth investing (in high quality companies), I argue, is immensely superior to simple growth investing, and especially so during secular bear markets.
Why? Your income/cash flow/returns continue to increase regardless of which market season it is.
In contrast, dividend growth investing (in high quality companies), I argue, is immensely superior to simple growth investing, and especially so during secular bear markets.
I had the same thought five years ago, when I bought shares of PFE, GE, AB, etc. and set them up for dividend reinvestment in an IRA. Take a moment to pull up the five year charts on those stocks.
Any form of un-hedged, long-only investing insufficient in a secular bear market, unless you time your purchases so you make them at our near the secular market low in valuations.
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