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TEN YEARS AGO, I recall sitting in a meeting at a local financial planning firm. We hadn’t heard of cryptocurrencies. The term “FAANG stocks” hadn’t yet been coined. On the minds of many individual investors was a different hot asset: gold.
Gold is the butt of many jokes in the financial blogosphere these days. Who can blame them? The shiny metal is flat over the past decade—and, of course, has produced no dividends in that time—while the S&P 500’s total return is more than 370%. Even relatively weak foreign stocks have climbed 100%.
But a decade ago, investors who were clamoring for gold didn’t know such a dismal period was in store. After all, CNBC headlines at the time were a constant flow of bullish sentiment. The world’s biggest ETF was SPDR Gold Shares (symbol: GLD) and the price of an ounce of gold had been higher in each of the 10 years leading up to September 2011. The precious metal had returned nearly 600% from September 2001 up until that meeting.
Meanwhile, at the time, stocks were experiencing a correction, plus longer-term returns had been lousy since March 2000. The preceding decade had seen gains of just 25% for S&P 500 investors. “The lost decade,” it was dubbed.
What was the meeting about? The lead financial planner wanted our take on gold because so many clients were asking for it. I recall arguing that, after a decade of outstanding performance, another string of strong annual returns was unlikely. Also, stocks were cheap, with the S&P 500 trading at a price-earnings ratio of just 13.5.
What is today’s asset that everyone feels they must own, but which likely won’t produce impressive profits over the next 10 years? I’m sure you have a few in mind. But I’d cast my vote for mega-cap technology stocks and most cryptocurrencies.
This is the basic principal of value investing. Unfortunately, the market is now so high, that even the stocks nobody wants are very expensive.
I disagree. Many areas, like emerging markets, appear to be a decent value right now. In fact, most ex-USA stock markets are not very expensive. I believe money put to work in VEU, VWO, VSS today will provide decent returns in the coming 10+ years.