Patrick O’Shaughnessy’s recent research confirms that the stock market has historically handsomely rewarded those who step up during troubling economic times (like we are in now). The entire research paper is well worth the read.
The natural emotional response to a weak economy and uncertainty about the future is one of conservatism. The dominant trade in 2010 has been out of stocks and into bonds, or looked at another way, away from risk and into apparent safety. The trouble with this investment decision is that for many it is based on what this research has found to be irrelevant data points. GDP growth, unemployment, taxes, and consumer sentiment all seem like they should matter for your portfolio, but 110 years of history says that they do not. The relationships between these sensitive economic variables and future equity returns are very weak and, if anything, contrarian.
