• The blue line on the graph shows an annualized real return (i.e. net of inflation) of 8.7% for the US stock market since 1981
   
• The red line is the annualized real return for bonds over the same period, which was 4.3%
   
• The green line is the performance of stocks trading at more than 10x their annual sales (think of today’s AI and AI adjacent stocks) over the same period and that annualized real return is 4.4% - almost identical to bonds
   
• Conclusions:
  • Over the referenced time period, stocks returned double that of bonds after inflation, which doesn’t mean you would have earned twice as much money – it means you would have earned almost 6x more money!
     
  • Investing in expensive sectors, where you overpay for a current fad, is a poor investment strategy compared to owning fairly-valued and profitable established businesses
     
  • Don’t get distracted! Keep short-term needs in cash, and long-term needs in sensible equity strategies

Randy and Ian

Chart source: GMO Quarterly Letter 2Q 2021, Dispelling Myths in the Value vs. Growth Debate