My Two Cents

Equities: Dead or just resting?

Chris Farrell Mar 10, 2009

A musing on the stock market….

These are truly scary times. The stock market has lost some $11 trillion in value since its October 2007 peak. Blue-chip companies like AIG and Citigroup are now penny stocks, while General Motors and Las Vegas Sands trade at less than 2 a share.

It seems that everybody is scouring through the numbers, trying to figure out how far down is down–and how long this bear market will last.

And if the stock market train wreck isn’t enough, investing icon Warren Buffett has come along with a new warning. “A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms,” he writes in his latest annual letter to Berkshire Hathaway (BRKA) shareholders. “When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.” Great.

No Longer a Cornerstone

What is the average saver in a 401(k)-type plan supposed to do? Abandon equities? Flee bonds? (Sales of home safes are up, but that’s not recommended.) Two simple market stories reinforce a time-honored lesson for all investing seasons. You don’t have a clue what investment will do well going forward, and neither do the experts.

You can read the rest of it here.

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