Bonds vs. Stocks

[Guest kawikaho]

Gary A Shilling has trumped the indexes by buying and rolling over LT Treasuries for the past 25 years.  I thought the idea was kind of crazy, but I guess not.  Here's another guy that pitches the same thesis:

 

http://www.marketwatch.com/story/stocks-losing-the-long-run-to-bonds

[benhacker]

A major lesson in investing is that just because something sounds crazy, but works, doesn't mean it isn't crazy.

 

The inverse holds as well.

 

The fact is that buying expensive stocks will result in poor returns, and buying governments bonds at massive yield premiums to actual future inflation will work well.

 

The problem is learning how to value stocks and how to predict inflation... let's see how that rolling LT treasury game works for the next 25 years.

 

Ben

[JEast]

Attached is some sobering data and research from the Leuthold Group. Steven Leuthold is sometimes called the contrarian's contrarian. The facts are that Treasuries for both the 30, 10, 5, and 1 year time frames have outperformed the market by increasing margins. Very sobering indeed.

 

Cheers

JEast

(formally 653211)

[scorpioncapital]

Why is everyone obsessed with the 'aggregate'? All these news reports are the polar opposite of value investing, which is a form of focus investing. Yes, maybe on average you have this phenomenon reported, but value investors invest in individual businesses using reason and analysis to pick better businesses for better returns. It is clear as day that a concentrated portfolio of the right businesses will blow bonds AND the averages out of the water.

[bargainman]

The problem with these sorts of return figures is that they are based on two randomly selected points in time.  Not a rolling average.  The market just crashed!  Of course the return is going to be lower if look at it now.  What about 1 quarter ago?  2 quarters ago?  2 years ago?  Randomly selecting two points in time "today and x years from today" is random and statistically nonsensical.

[benhacker]

Yeah, i guess I don't find this data surprising, sobering, insightful, or anything of the sort.

 

Stocks have sucked, and have had crappy yields for years.  for the majority of that period in question, treasuries had some juicy yields.

 

Anyway, just make money I guess.

 

Ben

 

I've been buying lots of fixed income lately, but most of it is rated 'junk'.  Treasuries here are a bet on deflation, but they are not anything else.  It may be a good bet, but these stats don't really say anything of value.  It's the same with the "stocks for the long run" BS that just said stocks outperform inflation by X% but mentioned nothing of specific issues or VALUATION.  Maybe I'm blind. ;-)

[Guest kawikaho]

Another interesting thing to note is lately, because of the lack of buyers for the recent Treasury auctions (no big surprise there), the long term yields have been climbing -- obviously.  With the lack of buyers for the U.S. govt's debt, prices should fall and yields should go up.  I believe, when the economy is on an uptrend, we will have two positives that could affect LT treasury prices: inflation, and lack of demand.  Might be the next investment oppty.  However, the implications of that would be an increase in the 30 yr mortgage rates.  As of recently, Treasury yields have started to climb, whereas 30 yr rates have not.  Hmmmm... things could get pretty interesting in the next 7 years.  I predict 70-80's style stagflation.