“In theory, there is no difference between theory and practice, in practice there is.”
Yogi Berra was talking about baseball, but the concept also applies to diversification, according to the GMO White Paper, The S&P 500: Just Say No. From the title, you might think the authors – Matt Kadnar and James Montier – don’t like U.S. stocks. They do:
“Being a U.S. equity investor over the past several years has felt glorious. The S&P 500 has trounced the competition provided by other major developed and emerging equity markets. Over the last 7 years, the S&P is up 173 percent (15 percent annualized in nominal terms) versus MSCI EAFE (in USD terms), which is up 71 percent (8 percent annualized), and poor MSCI Emerging, which is up only 30 percent (4 percent annualized). Every dollar invested in the S&P has compounded into $2.72 versus MSCI EAFE’s $1.70 and MSCI Emerging’s $1.30.”
The authors’ concern is U.S. markets have performed so well, investors may be tempted to abandon diversification and concentrate their portfolios in indexed U.S. stocks. Kadnar and Montier wrote, “Human nature is to extrapolate the recent past. It is easy to see, given the strong performance of U.S. equities in both absolute and relative terms, why many are suggesting they are the only asset you need to own.”
Focusing assets in the United States, according to GMO, ignores the most important determinant of long-term returns: valuation. “From our perspective, one has to make some fairly heroic assumptions to believe that the S&P is even remotely close to fair value.”
High valuations haven’t dulled the appeal of U.S. stocks for investors, though. Last week, the S&P 500 closed at a record high, and the Dow Jones Industrial Average posted its biggest gain since last December, reported CNBC.com.
7 steps to protect yourself after the equifax breach. From May through July, hackers exploited a website vulnerability at Equifax, one of the major consumer credit reporting agencies. If you have a credit report, there is a chance your sensitive and personal information including Social Security numbers, birth dates, addresses, and driver’s license numbers, may have fallen into the wrong hands. The stolen information could be used in tandem with passwords taken from other databases to commit financial crimes against you, reported a source cited by Consumer Reports.
Here are seven steps to take to help protect your assets and credit:
You may want to consider using a password management application. They’re designed to store and retrieve passwords so you can keep track of multiple long, unique password combinations without security issues like storing passwords improperly or failing to remember them.
If you have any questions or concerns about this breach or the markets, please contact us.
Weekly Focus – Think About It
“The most effective way to do it, is to do it.”
--Amelia Earhart, American aviation pioneer