Originally Posted by Eagle43
I stay in equities because of inflation. Seeing your loot lose its value will drive you back to... well w*rk. Why I remember buying gasoline at 29 cents a gallon. Movies were ... well I shall stop, but you get the idea. It's steadily rising, even if Uncle Sam says it's not. Keep up or boil.
This quote is typical of many in this thread, and in fact represents an attitude so commonly held that it is part of the investing landscape.
What if it were not true? Obviously there is inflation, but maybe that in itself doesn't make the case that stocks as a class protect against inflation. Here is a quote from an Elroy Dimson article linked in another recent post.
"Irrational exuberance has run its course. The first three years of the 21st century brought one of the worst bear markets in history, with equity markets around the world falling some 40 percent in real terms. Yet, despite fortunes lost on Wall Street, many investors remain irrationally optimistic about future long-run equity returns: The pervasive belief is that over the long haul, equities are sure to keep up with inflation. Unlike short-lived bursts of exuberance that may burst like a bubble, the excessive optimism of investors has been long term and systematic. In this article, we use the global database from our recent book, Triumph of the Optimists (Dimson, Marsh, and Staunton 2002), to confront the optimism of investors with the reality of history."
I recall being very surprised when investors shook off the bear market mentioned above, and held steady. Many early posts on this board mention ideas like holding the course , keeping the faith, etc. These are new behavioral traits to be shown by such a large cohort of people. In the past, any large downturn sent a huge majority of individual investors scurrying for cover.
My brother and I spent quite a bit of time speculating on what was different. Our number one suspect was that the boomer generation is different. For one thing, it is the first generation where a college education is widespread to ubiquitous among ordinary people. For another, it is the first generation to be subjected to widespread and deliberate attitude shaping, from the biggies of the 60s and 70s to more recent attempts at thought control in the educational, corporate, and media environments.
Also, it is a huge cohort, and therefore has been very powerful at persuading other groups toward its points of view.
Much of what we think we have learned we have only been persuaded of. Many of what we assume are facts are only attitudes.
A lot will depend on how robust these group mind shifts turn out to be!