Reports of ‘Death of Equities’ Greatly Exaggerated: DFA

Financial Times, 2012:  “With equity financing expensive, many companies are opting to raise debt instead, or to retire equity.”

After a period of market advance and retreat between 1979 and 1982, August 13 of the latter year “marked the first day of what would turn out to be one of the longest and strongest bull markets in U.S. history.”

His most damning piece of evidence against the death of equities pronouncement and subsequent follow-up is a simple look at S&P 500 growth over the next 30 years.

By the first anniversary of the beginning of the equity bull market, the S&P returned 58.3%; on the fifth anniversary, 224.%; on the 10^th anniversary 307.9%; the 20^th anniversary, 782.4% and, on the 30^th anniversary (coincidentially, 2012), 1,225.9% as of June 19.

He adds that one of the authors of the FT article, John Authers, is familiar with the BusinessWeek article and “wary of making pronouncements that might look equally foolish ten or twenty years hence.”

In a follow-up article appearing several days after the first, Wellington notes, Authers appealed for “divine assistance” in his forecasting effort: “O Lord, save me from becoming a contrarian indicator.”

“The notion that risk and return are related is so simple and so widely acknowledged that it hardly seems worth arguing about,” Wellington concludes. “But these articles (and others of their ilk) offer compelling evidence that applying this principle year in and year out is a challenge that few investors can meet, and explains why so many fail to achieve all the returns that markets have to offer.”