Saturday, January 22, 2005
# Posted 5:27 PM by Ariel David Adesnik
Remember the disclaimer that mutual funds are obliged to include in their ads: "past performance is no guarantee of future results."Krugman may be right that stocks are now overpriced and thus can no longer provide the historic returns of the 1990s. That is plausible.
But fear of another Great Depression didn't always make stocks a good investment. If memory serves, there was a lot of hype about stocks, especially blue chips, in the early 1970s. But the price of those stocks promptly fell and the market stagnated for the rest of the decade. Clearly, something more complex was going on here. By the same token, something more complex than low prices was probably responsible for stock market growth in the 80's and 90's.
Since all of this is way out of my area of expertise, I wouldn't surprised if there is some fundamental flaw in my analysis that I have failed to recognize. With any luck, some of you (presumably including AG) will be able to point out the error of my ways. But until then, I will enjoy some tentative schadenfreude.
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