Are Stocks Still Good Investments?

Stocks have had a really bad run this past decade with two big bear markets and one of the biggest crises since the Great Depression.  We seem not to be out of that one with unemployment still way up there and Europe about to blow up completely.

So it's natural for people to hate stocks and love gold.  But I would be very careful about making investment decisions based on past performance.  Oftentimes, the stock market is the most attractive with the highest prospective returns after a long period of flatness, and conversely returns can be the worst when the rear-view mirror tells you that stocks is where you have to be (in order to afford retirement, like those personal money magazines told you back in 1999,2000 when stocks had spectacular, five, ten, twenty year historical returns).

Right now, one asset that has spectacular returns is gold.  Gold can do no wrong.  Bernanke and Geithner will make sure to pump more money into the system until the economy recovers, which means more devaluation of the dollar, which means higher gold prices.

If the impossible (seemingly according to current consensus) happens and the economy recovers, then inflation will kick in with a vengeance due to years of pump-priming by the Fed, and gold price will go up.

So you see, no matter what happens, gold prices will go up!  And to make this even more convincing, notice how gold has outperformed stocks in just about every time period of the recent past!

Sound familiar?  Yes, it does sort of sound like why you had to own stocks in 1999/2000.

But anyway, back to the subject of whether stocks are good investments or not:  Joel Greenblatt is one of my favorite authors/investors.  He has written some amazing books on investing which are true classics.  And he is not just an author, but someone who has actually done very, very well as an investor (He has returned 50% per year over a ten year period and 40% per year for a twenty year period in his hedge fund).

He is definitely the real deal, and not one of those, "If you can't, teach"-type authors.

As I talked about before, one of my pet peeves is how so many people have learned the wrong lessons from the 2008/2009 bear market; stocks are no good, oh we better become better economic forecasters, oh we better time the market more, we have to diversify with gold, we have to hedge with options etc...

Here, in this great message at his website, Greenblatt talks about the right lesson to learn from this recent crash: Greenblatt's comment