Poor, Misunderstood Bill Gross Never Said Stocks Are Dead
Just look at executive compensation relative to that of an average worker and look at the ridiculous levels of compensation paid. I don't begrudge well-paid executives - let them make millions or tens of millions - if they deserve it. But a culture where an executive comes in, works for nine months, then gets canned or quits and still walks away with millions does not instill a long-term investment mindset in shareholders, not to mention employees.
If corporate culture is not focused on long-term shareholder value then investors shouldn't kid themselves into having long-term disproportionate positions in any one company. Today's investors/shareholders are much more skeptical about maintaining a long term position to allow your "money to do the hard work."
So if this is part of what Gross means, then I unfortunately agree with him.
3. Gross' analysis of stock value growth versus gross domestic product leaves me wondering a bit.
I spoke with a colleague, who is much smarter than I am, about this analysis. My question was: Isn't Gross missing something by just looking at the Standard & Poor's 500? What about those companies that never made it to the S&P 500 and have since gone by the wayside?
Did they not contribute to economic growth, as well, even though they are not reflected in the S&P 500 and didn't their shareholders lose out? Although my colleague agreed that I had something, he stated that there are even more private companies that were never, and will never, be measured by the S&P 500. They contributed to government, laborers and lenders, but cannot be measured by the index.
For another AdviceIQ advisor's take on Bill Gross's "cult of equity" statement, arguing that it's bonds, not stocks, which are "dying," click here.
The other thing that he pointed out was that dividends are not considered. If a the long-term real stock market growth is tied to real GDP growth plus the dividend yield, then it seems reasonable for an investor to get a long-term (as opposed to "really long" term) 6.6% real return.
4. Additionally Gross suggests a 4% nominal return on stocks.
I don't know where this comes from since I think everyone anticipates that an inflation rate of at least 2% to 3% over the next 10 years is the most likely course. It would imply a real equity return of no greater than 2%. That seems a bit too low. I am not smart enough to predict what equities will return for investors, but common sense tells me that it will be some time before we see the average gains that we saw the last 30 years.