Investors have three major misconceptions about market conditions, says David Winters, CEO of Wintergreen Advisors in Milwaukee, WI.
The first is that equities are dead. This is a controversial topic that’s sparked widespread debate about the merits of value investing and stock picking.
“Some very prominent bond investors [claim] equities will never make a comeback, but the wealthiest people in the world have made their money through ownership of all or part of a business,” says Winters.
Equities may have offered poor returns in recent years, he adds, the media has also had a hand in convincing people equities are a bad investment.
This pessimism isn’t all bad, however. It creates a buying opportunity, since there’s “such a sense of gloom, you [often] get a lot for what you’re [currently] paying. It’s like an after-Christmas sale for equities,” says Winters.
The second misconception is fixed income is a risk-free investment, he adds. In actual fact, “it’s actually a very risky asset class because of the probability of higher interest rates and the loss of purchasing power through inflation.” There’s also currency risk.
Third, investors also believe international investing isn’t worthwhile. “This is absolutely untrue,” suggests Winters.
“If you’re not involved in international equities, you’re missing the boat,” he adds.
“Intelligent investors [will] allocate some of their capital to equities, particularly international equities, and should reduce their holdings in long-dated bonds,” concludes Winters.