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Three Wise Men Offer Three Takes On Markets

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By Tomoeh Murakami Tse
Washington Post Staff Writer
Sunday, March 15, 2009

NEW YORK

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Bond guru Bill Gross says he's sold off all the stocks in his retirement portfolio, down to the very last share. The world as we know it, he says, has "changed almost overnight."

But legendary stock-picker Peter Lynch thinks bargains are so plentiful now, "you feel like a mosquito in a nudist colony."

And Burton Malkiel, author of the classic investing book "A Random Walk Down Wall Street," is sticking to his long-held belief in investing in index funds. That's because judging from history, what we're seeing now is "not anything terribly unusual," he says.

Two years into the financial crisis, our retirement savings have been halved. The unemployment rate is the highest it's been in a quarter-century. And around the globe, economies are suffering the sharpest downturns in decades.

We turn to some top investing minds for their take on the situation. Their words have been edited and condensed.

Burton Malkiel, professor of economics at Princeton University and author of "A Random Walk Down Wall Street."

On the economy: This recession is being compared in its severity to the Great Depression, and I suppose in terms of how fast unemployment is going up and how worldwide it is, it probably bears some similarity to the Great Depression. But I want to emphasize I don't think we're going into a Great Depression. For one thing, the money supply dropped by 25 percent during the Great Depression. Today, the Federal Reserve's balance sheet is expanding dramatically. And central banks around the world are doing the same thing with respect to fiscal policy. I think the Obama stimulus plan could be much better. I think it may even be too modest. But at any rate, it's a big stimulus plan. Relative to what we did in the Great Depression, this is real money.

On investing: What's going on now is not anything terribly unusual. There have been many, many periods in the past where the stock market has been absolutely terrible for a decade or more. Unless you think that all of the sudden, the whole U.S. economy is going to go into reverse and never going to return, I think the stock market will prove its worth again in the future.

Does that mean we're going to recover right now? Who knows. What we do know about the stock market is that, after very long periods of hibernation or decline, it typically produces quite generous returns. If you've got a 10- or 20-year horizon, this is probably a very good time to invest in stocks.

I've always thought investors should be very broadly diversified. What they should certainly not do is give up and sell all their stocks now, which is what they're doing. Investors are taking money out of equity mutual funds like never before. And they should, I believe, stop doing that because, invariably, investors take their money out near the bottom and put their money in at the top.

I'm an indexer. I'd buy a very broad total stock market fund. I think you ought to buy a total bond market fund that has safe Treasury bonds, and also corporate bonds which now have very generous spreads over Treasurys. If you wanted a tiny sliver of gold, fine, put it in. But I certainly wouldn't go overboard on that. I also think everybody should have a safe (cash) reserve for contingency. This is part of sensible investing. Money markets are a fine place to be.


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