STREET DOGS: Why historical context is important
Michel Pireu: Without context some trades can look like the only game in town
From Ritholtz Wealth Management: Providing historical context is important … because for an investor who just began paying attention to markets in the past 10 years, the extent of their context is that the S&P 500 is the only game in town; it always goes up and dollars invested in anything else are wasted. Look out past this period, however, and you see that this is plainly not the truth. From 1970 to 2009, the S&P 500 compounded at 9.87%, and MSCI Europe at 9.88%. The entire outperformance of the past 47 years occurred during the past seven years … underperformance, combined with investors’ attitudes toward European stocks — which are apathetic at best — has caused the valuation gap between US and European equities to widen into a gulf. We need to not only understand this empirically, but to be invested in such a way so as to take advantage of the myopia of others. In 13 of the past 16 months, US investors have pulled money from European stock ETFs and added money to US stock ETFs ...
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