Kudlow's Corner

Is a "stocks for the long run" strategy still the best way to create wealth in America?


We asked our panel:

Is a "stocks for the long run" strategy still the best way to create wealth in America?


NO 3

The Kudlow Caucus Breakdown

Stefan AbramsManaging Partner, Bryden-Abrams Investment Management
Yes, of course. The only way to create wealth in a capitalist economy is by the ownership of equity in growing, profit making businesses. However, that does not mean that an investor should continue to hold the same equities over an extremely long period. Every successful company eventually reaches a peak in profitability, at which time its shares should be sold in favor of a more dynamic opportunity. At any point in time only a small percentage of all the publicly traded equities have real investment merit.

Joe Battipaglia
Market Strategist, Stifel Nicolaus
An actively managed stock portfolio is the best way to create wealth in America. In recent memory, there were two long periods of time when stocks didn’t work: 1968-1982 and 2000-2008. So that points to the fact that timing is important and where you are in the business cycle is important, and since not all stocks behave in the same way, you must actively manage your portfolio year in and year out to be successful.

Jared Bernstein
Senior Economist, Economic Policy Institute
No. It used to be, and I wish I could say it still was, but the stock market I learned about in grad school—an efficient, allocative mechanism, where household savings were allocated to the most productive firms—just doesn’t seem to be operative these days. Excessive financialization, securitization, and inflated derivative contracts are undermining the classical model.

Jerry BowyerChief Economist, Benchmark Financial Network
…but there are rapids ahead. This won’t be smooth growth. It’s not just stocks; it’s bonds (especially tax-favored munies); it’s private equity – venture capital for the big boys – angel investing for the littler guys. This is no time for brain-dead optimism. This is a time for wily optimism.

Vince FarrellScotsman Capital Management
Yes, and maybe even more so now that we have seen real estate can indeed go down in value. A diversified portfolio that is regularly rebalanced will provide adequate returns. Market declines like the one we are in should be looked upon as an opportunity to buy. The average mutual fund does well enough. The average mutual fund investor does much less well by buying at highs and selling at lows.

Jim LaCampPortfolio Manager, Portfolio Focus, RBC Wealth Management
Co-Host, Opening Bell Radio Show, Biz Radio Network
As long as investors model their portfolios to reflect the global business picture. The U.S. is a much smaller player on the world scale than we used to be, and portfolios need to reflect that. Stocks in Emerging markets, developed markets and the U.S. are still going to be the best long term path to wealth. Always have been, always will.

Art LafferFmr. Reagan Economic Advisor
Chief Investment Officer, Laffer Investments
No. Not for the next decade. Until the political climate shifts, it probably won’t be a very good time to be in stocks.

Donald L. Luskin Chief Investment Officer, Trend Macrolytics LLC
If the subtext of the question is "are stocks no longer a good investment" because of upcoming political adversities for capital, then the answer is still "yes." Stocks for the long run have been the best investment through good times and bad -- and the truth is, you never really know for sure in advance whether the coming period is going to be good or bad. So just buy stocks, close your eyes, and wait 30 years. You'll do fine.

Steve MooreSr. Economics Writer, The Wall Street Journal Editorial Board
Stocks are ALWAYS the best long term investment and that's been true since the New York Stock Exchange opened its doors. I'm bearish short term, but remain bullish for the long term. The average real rate of return on stocks for the last 100 years is 8%

James Pethokoukis
Sr. Writer, U.S. News & World Report (Money & Business)
What else are you gonna do, invest in Pokemon trading cards? Look, if you believe in the Amazing American Growth Machine, then you believe in the stock market. So investing in American stocks, plus equities from fast growing nations like China and India, will certainly be a wonderful way to create wealth. The big threat to all of this is the extreme global environmental movement which views economic growth as a bad thing and could push policies that would hurt growth and wreck globalization. But I think people are smarter than that. At least I hope they are.

Robert Reich
Former Labor Secretary
Professor of Public Policy, UC Berkeley
But depends on how long the long run is. As Keynes said, in the long run we're all dead. So far this decade looks similar to the 1970s, when the market fizzled. If you're investing for the next twenty years, get into a diversified stock portfolio. But if you're on the cusp of retirement and think you'll need to draw down your assets in the next few years, take another look.

Gary Shilling
A. Gary Shilling & Co. President
Wealth is measured by productive assets, not the prices investors put on stocks, for whatever reason. Also, if you lose 50% on a stock, you have to regain 100% to get even. So, historically, you're better off coolly on the sidelines during bear markets, even if you forego the blowoff tops.