Reliance Investment Management

This week The Wall Street Firm Goldman Sachs has issued a call for investors to buy stocks.   Goldman Sachs described this opportunity for investors in a paper that was released by the firm this week.

….The prospects for future returns in equities relative to bonds are as good as they have been in a generation….

The title of the Goldman Sachs Report is “The Long Good Buy;  The Case for Equities – I am enclosing a link to the report for readers who would like to read this below.  The report is 40 pages.

The Long Good Buy;  The Case for Equities

At Reliance, we do not dispute Goldman Sachs point of equities superior attraction versus bonds at this point in time – we actually have already commented about this on earlier articles such as Here and Here.

Where we do differ with Goldman Sachs is the timing of  their advice to the Investing public that this week is the “once in a generation call” to buy equities.

A much better time for Goldman Sachs to have issued this call to the investing pubic to buy stocks would have been March 21, 2009 – three years ago – when stocks were at “Once in a Generation lows”.

Let’s take a look at a chart of the major indices from March 2009 to today – we will look at the following Stock Market Indexes:

• S&P 500
• Nasdaq
• Russel 2000 Small Caps
• CRB Index (Commodities)
• US Dollar (below – note the decline in the purchasing power of the Dollar)

(Click on Chart for Larger Image)

As readers can see – Goldman Sachs call that they issued this week that now is the “once in a generation” time to buy equities has come  after equities have risen over 80% – 100% higher in the past three years!  Below is another chart which shows the performance of the same indexes over the past  three years.

(Click on Chart for Larger Image)

One of the goals of “Investing” is to be buying asset classes when they are out of favor (and typically  at lows) and selling these asset classes when they are loved (which are typically as they are making new highs).

The timing of Goldman Sachs call this week in issuing the once in a generation buy call comes after the stock market indices are up significantly from the 2009 lows.  Furthermore, the market this week are significantly higher from their most recent lows from October 4, 2011 – when the S&P 500 was at 1,074.  Below is a chart of the S&P 500 that shows how far the S&P 500 has come from it’s recent low in October, 2011.

(Click on Chart for Larger Image)

History clearly demonstrates that buying an Investment or an Asset Class at their highs – or after an Investment or Asset Class has significantly increased in value – is not a prudent strategy for building wealth over a period of time.

At Reliance, our advice on the Goldman Sachs “once in a generation” call is the same advice we have for dealing with any of the Wall Street firms – and that advice is “Caveat Emptor”  –  which is the famous Latin saying that translates to “Let the buyer beware”.