ValuFocus Investing: A Cash-Loving Contrarian Way to Invest in Stocks

Chapter 7

Relevant Market History of Investing

Investing in stocks? Of course. All conventional wisdom says stocks get you a better return than a savings or money market account or even a bond over the long term, despite their volatility. Maybe gold, silver, oil, and other precious metals plus commodities should be in a diversified portfolio. And there is real estate. It should produce investment gains when the economy is in good shape.

If we learned anything during the recent economic meltdown in 2007–2009, it was that when things go bad, all asset classes tend to become more correlated and go down simultaneously.¹ There is no place to hide to avoid risk of loss! Even cash, the ultimate risk-free asset, faces the uncertainty of inflation. Two of the worst years for T-bills were 1946–1947 when unanticipated inflation wiped out over 28.4 percent of investors' purchasing power after the removal of WWII price controls. After WWII, most economists expected a depression, not inflation.

Now at the present, what do we fear? To avoid inflation, can the Federal Reserve, at just the right time, squeeze out just the right amount of excess liquidity so that it floods the worldwide economic system to avoid letting the housing crisis turn a deep recession into another depression?

However, equities are likely to be at or near the top of any list of favored investment return options over time, despite those dark economic and/or political times that make us live through down stock markets.² So ...