Jeremy Siegel, business professor at the Wharton Business School, has given us investors a lot to learn from. He's the author, for example, of Stocks for the Long Run, and also of The Future for Investors. He's also shown us how to find great stocks and demonstrated the power of dividends.
So when he speaks, we should at least listen, right? Well, he was recently interviewed on public radio, and he advocated investing in stocks for the long haul. "In March,” he said, “we were down more than 50%. And I looked all the way back [over the] last hundred years. Once you're down 50%, your prospects are very good." That's from a guy who has spent a big part of his life studying the stock market's performance over the past 200 years.
Indeed, many well-known stocks are down 50% or more over the past 12 months:
|
Company |
52-Week Return |
|---|---|
|
Alcoa |
(72%) |
|
MEMC Electronic Materials |
(71%) |
|
Valero Energy |
(60%) |
|
Chesapeake Energy |
(66%) |
|
Mosaic |
(71%) |
|
Caterpillar |
(55%) |
|
Freeport-McMoRan Copper & Gold |
(58%) |
Source: Yahoo! Finance.
One objection I have to Siegel's argument, though, is that it depends entirely on past experience projecting into the future. Think back 100 years to 1909. I know there's much to be learned from the past, but I still worry that we sometimes draw too many parallels. After all, the world was very different then. Our workforce looked different. Our industries were different. Global trade patterns were very different. Business and securities regulation was very different.
He's probably right, though
Nevertheless, I'm not betting against him. Previous bear markets have happened for a variety of different reasons, yet they've all been followed by recoveries. Sure, there's a chance that this time will be the exception. But those who've believed that in the past have gotten burned every time.
As I look at my portfolio, many of my stocks are also down substantially, and I certainly think they're more likely to recover than they are to lose more value over the long run. That's not to say that those share prices won't drop tomorrow, or even over the next year. But over the coming years, I believe these current prices will look like a bargain -- and anyone buying at current levels will be glad they did.
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