American Investment Services, Inc.

Disciplined, Diversified, & Cost Effective

Feb. 2013 – The Old Normal

In early 2009 renowned bond investor and PIMCO chief investment officer Bill Gross and CEO Mohamed El-Erian proclaimed the emergence a new post-financial crisis era, coining the phrase “new normal”. They predicted a period that would be characterized by several years of economic stagnation and below average equity returns in the U.S. and in other developed markets. They urged investors to set aside long-held beliefs, including the fundamental premise that riskier assets such as common stocks would continue to provide high relative returns over the long term. The financial media amplified the message and new normal quickly become the topic du jour among investment pundits.

Four years later it appears equity markets didn’t get the memo. Between January 2009 and January 2013 the S&P 500 provided a total return of 55.3 percent (15.3 percent annualized), while bonds (measured by the Barclays Capital U.S. Aggregate Bond Index) returned 22.8 percent (6.9 percent annualized). Our table on page 13 provides further evidence that during this span developed market stocks in the U.S. and around the world outperformed most of our other recommended asset classes.

The fact is, predictions of capital market returns based on current and emerging news make compelling reading and generate colorful headlines, but otherwise are of little value. These efforts are futile because news is random by definition. Capital markets quickly digest the implications of this meandering stream of information, so security prices move in a manner that is unpredictable.

Prognostications are no substitute for the far less glamorous task of empirical research. Methodical review of risk and return data, however mundane, is extremely useful to the rational investor.

As far as we are concerned, the past four years provide no evidence that would suggest the dawn of a new normal. In fact we see a whole lot of the “old normal” in which markets continue to defy the prognostications of so-called experts, and disciplined investors are rewarded for putting their capital at risk.

Also In This Issue

Spend From Capital
Gold Fields LTD. Spins Off Sibanye Gold
The Randomness Of Returns
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Recommended Investment Vehicles