In early December I received an email from an AFM reader. This is what he said:
I have wondered for some time now whether Clements, who I consider the most calm and reassuring voice around, could be persuaded to comment in public about our current economy. You mentioned recently he had sent you some survey or such. Am I missing something he has recently written? I’d love that comfort of someone *still* telling me everything he used to write about in WSJ is still true. I’m sure it is, but I’m human and like to hear the obvious (or un-obvious?) repeated occasionally.
Thanks very much,
I forwarded BK’s email to Jonathan. It took him awhile to get back with me because he had to first check with his employer to make sure it was okay to make a public comment. Anyway, this afternoon I did get a response from Jonathan and I’m happy to pass it along to my AFM readers. Here ’tis word-for-word:
Hope all’s well and that you enjoyed the holidays. You asked for my thoughts on the markets. Sorry to be so slow to get back to you. As you know, I left The Wall Street Journal last year and now work as Director of Financial Guidance at myFi (www.myfi.com), a division of Citigroup Global Markets, Inc. Still, these are my thoughts—not necessarily those of Citi or the other folks who work here.
Over the years, readers have told me they think my investment philosophy is pretty conservative, presumably because I advocate keeping costs low, trading infrequently and diversifying as broadly as possible. Yet, in truth, I believe in taking risk—but taking it prudently. Over the long haul, this prudent risk-taking should be rewarded.
But it certainly wasn’t rewarded in 2008. There was no place to hide in the stock market, traditional safe havens like gold stocks and commodities got crushed and even supposedly safe investments—such as municipals and high-quality corporates—got roughed up.
Thanks to all that carnage, I’m as enthused about my portfolio as I’ve ever been, for three reasons. First, the financial terror today surpasses anything I can recall, including the howls of anguish in October 1987 and October 2002. It may be a foolish knee-jerk reaction but, with so many convinced the world is about to end, I feel duty-bound to point out that the sun keeps rising. The bottom line: If you’re a contrarian, you’ve got to love this market.
Second, valuations appear attractive. It’s tough to get a handle on price-earnings multiples, because the slowing economy is wreaking havoc with corporate profits, so consider dividends instead. Today, the Standard & Poor’s 500-stock index is yielding more than 3%. The last time yields were this high was in the early 1990s. In fact, the S&P 500-stock index is now yielding more than 30-year Treasurys, which I find astonishing.
Third, optimism is, I believe, the only rational choice. If the economy recovers, stocks should fare well. What if, instead, we’re headed for economic apocalypse? In that scenario, even conservative investments may fail, which means cautious investors could suffer along with those who are more aggressive. In other words, the upside belongs to stock investors and the downside may belong to everyone, so wagering on optimism would seem to be the more logical choice.
I sure do miss Jonathan’s weekly columns in the Wall Street Journal! I bet you guys do too!
Thanks, Jonathan, for taking the time to share your thoughts.