Rob Arnott is one of the few experts who predicted that the past decade was likely to be unpleasant for equity investors. In early 2002, he wrote a paper with Peter Bernstein that concluded that stocks were quite likely to under-perform bonds over the next decade. In mid-2009, having seen a long period in which bonds had, in fact, outperformed stocks, he wrote an article that was titled Bonds: Why Bother?
In this article, Mr. Arnott presents data to demonstrate that bonds have persistently out-performed stocks over a number of very long (multi-decade) historical periods. He then shows that when you look at price appreciation of stocks, net of inflation, there were three 20-30 year periods in the 20th century in which the real prce appreciation of stocks was less than or equal to zero! Continue reading