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Could someone run through that bit about CAPM once more?
Old 11-01-2011, 11:20 AM   #1
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Could someone run through that bit about CAPM once more?

Say What? In 30-Year Race, Bonds Beat Stocks - Bloomberg

Just in- for the first time since the War Between the States, treasuries beat stocks over a 30 year period.


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Old 11-01-2011, 12:00 PM   #2
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Interesting.... but not much help going forward....

from someone quoted in the article....

“The rally in bonds is a once in a millennium event, but it’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward whereas stock returns can repeat themselves, and are likely to outperform,” he said. “If you missed the rally in bonds, well, then that’s it.”
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Old 11-01-2011, 12:07 PM   #3
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Interesting.... but not much help going forward....

from someone quoted in the article....

“The rally in bonds is a once in a millennium event, but it’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward whereas stock returns can repeat themselves, and are likely to outperform,” he said. “If you missed the rally in bonds, well, then that’s it.”
Yes; please don't imagine that I am recommending bonds, or annything else for that matter.

Just thought it was remotely possible that it would interest someone.

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Old 11-01-2011, 12:48 PM   #4
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Not clear if they are taling price only (seems likely) or total return. They are comparing to the S&P 500 index, which is price only. Kind of useless if it's just price, and practically useless if they don't make it clear they are using total return. You would think these guys are making enough to come up with something that made sense.
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Old 11-01-2011, 02:00 PM   #5
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Yes; please don't imagine that I am recommending bonds, or annything else for that matter.

Just thought it was remotely possible that it would interest someone.

Ha
I didn't think you were... and it IS interesting...
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Old 11-02-2011, 07:14 AM   #6
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Not clear if they are taling price only (seems likely) or total return. They are comparing to the S&P 500 index, which is price only. Kind of useless if it's just price, and practically useless if they don't make it clear they are using total return. You would think these guys are making enough to come up with something that made sense.
I also couldn't tell if there were measure price returns or total return. Prof. Speigel is always careful to include dividends in his calculations, looking at the invest performance of Vanguard S&P 500 fund I see a total return of 30 years period of 10.5%, so I'm pretty sure it is total return.

Interestingly enough Sept 1981 is precisely when I started investing. I'd like to think that it was Fidelity Magellan, but I think it was some other Fidelity fund.

Overlooked in the bonds beating stocks is a pretty important fact. $10K invest in the Vanguard 500 fund with dividend reinvested is now worth over 192K (higher if you switched to the Admiral fund when first became available). Now inflation for the same 30 year period means you need $24,900 for the same purchasing power as 10K. But still anyway you look at investing in either bonds or stocks has been pretty good for the last 30 years, despite the trauma of the last decade.
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Old 11-02-2011, 07:28 AM   #7
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30 years is a cherry picked date, because the peak interest rate was 14.5% in 10/81. A year later it had fallen to 10.5%, a year earlier it was at 11.6%. Gary Skilling has advised buying long bonds over much of this period, with a similar message about returns beating the S&P. His approach and math assume buying the 20 year and selling it one year later, so he is comparing the capital gain on the bond investment vs the buy and hold on the S&P. No transaction cost or tax included.

While interesting, the only meaningful conclusion is that for the next 20 - 30 years, bonds currently offer very low potential returns.
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