For most investors in North America the stock market remains the favourite choice.
Yet, at this stage, that option is of questionable value. First, one should realize that enthusiasm for equities clearly is a peculiar North American phenomenon.
Emerging markets have been a disappointment. Many investors hoped the superior growth of developing economies would allow them to outperform our markets. Yet, even though China and India still are expanding strongly, that has not entailed higher share prices. As of the latest quarter they are lower by about 25 per cent.
The result is the markets in developing economies now trade at a discounted value compared to the- developed market counterparts. In view of worldwide turmoil, both economic and political, there is little reason to assume the gap will change soon. Also those markets are highly illiquid, and it is difficult to buy or sell shares in large volume.
In the last 25 years in the British market, the only sophisticated market outside North America, British shares have turned in a significantly inferior performance than here in North America, about one third falling behind ours in the latest decade.
It should be noted that the widespread economic and commercial misinformation makes accurate information hard to come by.
It is well known that the consumer price index underestimated price changes as they are “adjusted” for quality improvements. Share prices are often distorted, as was the case with bank stocks in the previous decade.
Few analysts ever make a sell recommendation for fear of alienating prospective clients or valuable sources of information.
Markets here are overvalued on an historical basis. Price-learnings are high with the dividend yield of under 2% way below the average of the post-war era. Too, the market is trading 44% above its long-term valuation of assets.
Nevertheless, it is truly remarkable that, despite all the hoopla, the U.S. stock market has not advanced over the past decade. Also, the Dow Jones Index is very misleading, as its composition changes, substituting laggards for high-growth companies.
Clearly, despite rampant enthusiasm, the stock market is a questionable long-term bet for investors. Scepticism is more than justified.