The Meb Faber Show

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Edward McQuarrie, Santa Clara University - Sometimes Stocks Beat Bonds, Sometimes Bonds Beat Stocks | #324

E324 • Jun 28, 2021 • 77 mins

In episode 324, we welcome our guest, Dr. Edward McQuarrie, Professor Emeritus at Santa Clara University. In today’s episode, we hear why the ‘stocks for the long-run’ thesis may not be so true. Dr. McQuarrie found digital archives and older data that gives a different conclusion than what Professor Jeremy Siegel found. We walk through how stock and bond returns have changed over time and learn that bonds have outperformed stocks for decades in countries like France and Japan. We hear about Dr. McQuarrie’s ‘regime thesis,’ which says the risk/return profile of both stocks and bonds depends on what regime we’re in, both capable of outperforming or underperforming over any time horizon.

Key Points

The traditional investment maxim that stocks outperform bonds over the long run is challenged by historical data showing periods where bonds have outperformed stocks, both in the US and internationally, such as in Japan and France from 1960 to 2020.
Edward MacQuarrie's research reveals that before 1942, stocks and bonds had parity in performance, and the notion that stocks always beat bonds over any given period is not universally accurate, as market regimes change and can lead to extended periods where bonds may outperform stocks.
Dividend contribution to total stock returns is not constant over time, with dividends accounting for most of the total return in the period before the Civil War and significantly less in more recent times, highlighting the variability and regime changes in investment markets.

Follow Edward: Website

Resources: Stocks for the Long Run (Siegel) Hamilton’s Blessing (Gordon) The Birth of Plenty (Bernstein) The Case for Global Investing (Faber) Introducing the Carb-Sharp Ratio (McQuarrie) The Investment Pyramid

Speakers

Edward McQuarrie

Guest • 74%

Meb Faber

Host • 26%

Chapters

0:00	Introduction and background of Professor Edward McQuarrie
0:56	Sponsor: Y Charts
9:55	Discussion on the relevance of historical stock market data and comparison of different datasets
17:12	Impact of stock selection and data quality on investment strategies
27:37	Changes in the bond market and its impact on equity premium calculation
35:23	In-depth discussion on stocks, bonds, bills, and inflation with Edward McQuarrie
41:34	Performance of bonds vs. stocks in different countries and the importance of international investing
48:39	Future of bond returns and the complexity of equity premium and risk
53:56	Role of dividends in total return and other areas of interest in the investment landscape
1:02:06	Revision of historical data and current state of the corporate bond market
1:07:05	Evolution of investment strategies, memorable investments, and importance of tax considerations
1:15:56	Where to find Edward McQuarrie's work and research
1:16:36	Closing remarks by Meb Faber

Transcript

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