Poor, Misunderstood Bill Gross Never Said Stocks Are Dead
NEW YORK (AdviceIQ) -- Bill Gross, the founder of fund company PIMCO and often called the King of Bonds, said in his August Investment Outlook that the cult of equity is dead. Many people assailed him for seeming to condemn stocks as an investment. But he didn't.
To start with the media is generally misrepresenting what he said and missing his message. He did not say that equities are "dead." What he did say was that the "cult of equity" is dying.
Although I do agree with his overall message that investors must be prepared for future returns that are lower than what history suggests, and with some of the other implications, I do question some of his initial analysis.
1. "...investor impressions of 'stocks for the long run' or any run have mellowed..."
I agree with this. We have seen this in our clients. It is not that they are averse to stocks, but their expectations and willingness to throw "all in" to equities has been altered. They are much more wary and more open to risk mitigation than in the past. They really are more tolerant of sub-market returns if it means that they are experiencing less volatility and feel that they are reducing their risk.
2. "Several generations were weaned and in fact grew wealthier believing that the pieces of paper representing 'shares' of future profit were something more than a conditional IOU that came with risk."
I believe that this is clearly the case with individual investors. We have seen this with some of our older clients and with the parents and grandparents of our clients. They had very long-term positions in certain stocks that they were attached to. Some have very beautiful and meticulous hand written ledgers that track each stock transaction.
But we don't see this attachment with our younger clients. And frankly I think that is probably a good thing. I believe that we don't see the attachment because people don't have faith in corporate culture anymore.
In many cases, corporate culture has shifted from more of a focus on long-term shareholder value, as I believe was prevalent for our parents and grandparents, to being more about rewarding executives at the expense of shareholders and workers.