Guest Post by John Mauldin and Ed Easterling
A famous Greek myth involves Orion and Scorpius, whose struggle became eternal after Zeus banished them to opposite fields of the night sky. During winter, Orion hunts in the evening. Yet when summer returns, Scorpius owns the heavens.
The stock market has its own perpetual mythologies. Every investor and financial advisor understands that “past performance is not indicative of future results.” Yet for passive stock portfolios, many embrace century-long averages of stock market performance as a reasonable assumption for future returns.
In reality, the market has periods when Orion finds a bounty of returns, and volatile, low-return periods when Scorpius rules. Investors must know whether the stock market’s season is summer or winter in order to select the best securities and strategies.
Continue reading “No Free Lunch: Return Is Determined by Valuation”
