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Why Should I Hold Stocks?

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Summary

In this article, Michael Batnick discussed the question of why one should own stocks, given that they could get close to a 5% return from a 1-year treasury bond. He argued that while safe assets may seem like the right decision in times of uncertainty, protecting oneself from risk when things feel dangerous is rarely the right decision in the stock market. He cited two charts to illustrate this point, one showing that when the top 5 stocks carry the rest of the market, the S&P 500 is up 22% twelve months later on average, and the other showing that high concentration has not been a harbinger of doom for forward returns.

Q&As

What has caused many investors to question why they should hold stocks in 2023?
Many investors have questioned why they should hold stocks in 2023 due to the availability of close to 5% risk-free returns in 1-year treasury bonds.

What has been the average twelve month return of the S&P 500 when the top five stocks have carried the majority of the market?
The average twelve month return of the S&P 500 when the top five stocks have carried the majority of the market has been up 22%.

How has the Fed reacted to rising inflation in 2023?
The Fed has reacted to rising inflation in 2023 by aggressively hiking interest rates in an attempt to slow the economy and cool inflation.

How has the IPO market been affected by market volatility in 2023?
The IPO market has been frozen due to market volatility in 2023.

Why is protecting oneself when things feel dangerous not the right decision in the stock market?
Protecting oneself when things feel dangerous is not the right decision in the stock market because history has shown that high concentration has not been a harbinger of doom and has led to better forward returns.

AI Comments

👍 This article is an insightful look into why it is important to hold stocks even when it may feel risky. The charts provided are an effective way to illustrate the point and the links provided at the end are an excellent resource for further exploration into the topic.

👎 This article does not provide enough evidence to support the argument for holding stocks and the overall tone of the article is overly optimistic about the potential return from investing in stocks.

AI Discussion

Me: It talks about why people should consider investing in stocks rather than bonds despite the current economic climate. It argues that when the market is uncertain, investors may be tempted to opt for the safety of bonds, but that stocks have historically been a better option for long-term returns.

Friend: Interesting. So what do you think about the implications of the article?

Me: I think it's a reminder to investors that while there is uncertainty in the stock market, it can still be a very rewarding investment option. Even when the market is facing turbulence, stocks can still outperform bonds over the long-term. In addition, it's important to remember that even if the top five stocks are carrying the market, there are still opportunities for other stocks to gain. It's important to remain diversified and to be aware of the potential risks and rewards associated with investing in stocks.

Action items

Research the five stocks driving the S&P 500 and Nasdaq-100 performance in 2023.
Analyze the historical data on the impact of concentration on forward returns.
Follow the blog's social media accounts and read the recommended articles to stay up to date on the latest market trends.

Technical terms

Risk-free: A type of investment that carries no risk of loss of principal.
Treasury bonds: A type of debt security issued by the U.S. government and backed by its full faith and credit.
Inflation: A sustained increase in the general level of prices for goods and services.
Fed: The Federal Reserve System, the central banking system of the United States.
IPO: Initial public offering, the process by which a private company can go public by selling shares of stock to the public.
Nasdaq-100: A stock market index composed of the 100 largest non-financial companies listed on the Nasdaq stock exchange.
S&P 500: A stock market index that tracks the performance of 500 large-cap companies listed on the New York Stock Exchange and the Nasdaq.
Mega-cap stocks: A stock with a market capitalization of more than $200 billion.
Nominal: Not adjusted for inflation.
Reinvestment risk: The risk that the return on an investment will be lower than the rate of inflation.