The 4 Biggest Investment Myths of 2008
by Alexander Green, Chairman, Investment U
Investment Director
Monday, December 29, 2008: Issue #907
Pessimism about the U.S. economy and financial market is so thick right now you could cut it with a knife.
I’ll be the first to admit that times are tough. But Americans have seen tough times before. And we have always prevailed.
Too many investment myths have gone unchallenged lately. Today I plan to refute them – and explain why financial markets are likely to perform much better than most investors believe in the year ahead.
Let’s begin by examining the four biggest investment myths circulating right now…
Investment Myth #1: The Era of Free Markets is Over
It’s true that many of the apostles of free-market economics have begged Congress for government intervention during the current credit crisis. But nobody is seriously arguing that Uncle Sam should nationalize the economy, set wages and prices, or establish production quotas.
The free market still constitutes the best means of securing prosperity over the long term. (Just ask the Chinese. Three hundred million people there have been lifted out of poverty over the past three decades.) We will find ways to make free markets work better – not abolish them.
Investment Myth #2: The United States Has Lost its Competitive Edge
The reality is the United States continues to lead the world in innovation, technology, higher education, worker training and the ability of the labor force to move from one job to another.
Three months ago, the Swiss-based World Economic Forum released its global competitiveness report and, once again, the United States topped the list. The study further noted that our strong productivity will help us “ride out business-cycle shifts and economic shocks” better than most countries.
Investment Myth #3: The United States is No Longer an Attractive Market for Investment
Yes, the Fed’s move to take interest rates near zero has predictably knocked the dollar for a loop again. But that isn’t deterring foreign investors. Perhaps they know that the biggest bargain of all is inexpensive assets in a cheap currency.
According to the World Bank, the United States attracted more than $2 trillion worth of foreign direct investment last year. Britain, Hong Kong and France – the next three top finishers – each registered less than half as much. The United States remains the economic engine of the world – and smart capital will continue to seek a home here.
Investment Myth #4: U.S. Financial Markets Will Take Decades to Recover
In the more than 200-year history of equity investing in the United States, stocks have never taken decades to recover. Those who argue they have always omit dividends. Dr. Jeremy Siegel of the Wharton School points out that even if you invested a regular amount in the Dow every month beginning at the market peak in 1929, within four years you would still have outperformed someone who invested the same amount each month in T-bills. (The key is regular investment and reinvested stock dividends.)
The Nikkei 225 in Japan, of course, is still down more than 70% from its peak in 1989. Could the United States be headed for the same long, deflationary spiral? That’s extremely unlikely. The Japanese real
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