Buying stocks for the long run is a great investment theory that doesn’t always work well in practice, Gary Shilling, president of A. Gary Shilling, told Yahoo! Finance.
“If you lose 50 percent you’ve got to double your money to get even,” Shilling says.
“On the way up, performance is relative, on the way down it’s absolute.”
Shilling expects the recession will run at least through next year and he believes the S&P will fall 30 percent in 2009 with earnings of only $40 per share.
“Normally at the bottom you have a 10 or 12 multiple, but with low interest rates 15 is possible,” he notes. “That puts the S&P at 600, a (long way) from where we are now.”
Shilling says the “only safe place to hide” is 30-year Treasury bonds.
“I buy Treasuries for the same reason most people buy stocks: appreciation, not yield,” he says.
"There's so much hot money around the world that it tends to end up on the same side of the same trade at the same time," Shilling observes.
“When one market starts down, you get a ripple effect, so you see (investment classes) move together.”
A dozen market strategists and chief investment officers recently surveyed by Barron's expect the S&P’s 500 index to finish 2009 near an average of 1045, or 18 percent above today's level.
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