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Half of the S&P 500 Yields More Than 10 Year Treasuries – Why Aren’t People Buying Stocks?

September 06, 2011 | About:

I am not a great thinker. If my brain has one strong suit it is that it is fully aware of its limitations. So I try stick to making investment decisions based on the obvious, not the complicated. I think I can beat Mr. Market by being disciplined and unemotional. Not by being super-intelligent.

These days there are a few things that seem obvious to me and are influencing my investment decisions:

- Over the next five years oil prices are going to remain high and perhaps go considerably higher.

- Despite what the volatility of Mr. Market and the talking heads on CNBC might suggest, the world is not going to end, and the businesses that relate to the stocks I own are hardly changing.

- If I have the opportunity to either lend money to a chronic borrower at 1.9% for 10 years or buy pieces of the best businesses in the world at 10% earnings yield… the decision is obvious.

And yes that chronic over-indebted borrower is the United States.

If you are avoiding stocks simply because you are afraid of the volatility, you really need to suck it up and not look at stock quotes so often.

Today I actually watched an interview with Bob Doll on CNBC that I thought was useful for investors. He wasn’t predicting the closing price of the market for December 31 or making some other prediction that would be impossible for anyone to be able to know. Just plain old common sense discussion of stock valuations.

Here is a recap:

- More than half of the S&P 500 have dividend yields greater than the 1.9% yield on the 10-year Treasury/

- Why aren’t investors buying stocks that yield more and could also have capital appreciation? Simply, people are scared and aren’t willing to hold onto stocks through the volatility.

- To make Treasuries a better bet than stocks at these prices investors must believe that stocks are not going to go up for 10 years AND that their dividends are going to decrease — ludicrous assumptions.

- Doll will take the equities all day long.

- Doesn’t expect that we will have another recession, although not overly confident in that.

- The big concerns in Europe are that policy makers continue to be paralyzed, have European banks that fail or are nationalized, or that a serious recession begins.

- Thinks Europe needs an ECB rate cut, faster purchases of ECB bonds, a guarantee of interbank lending or Eurobonds — something to break the logjam.

- Doesn’t expect Obama can do much with his speech on Thursday to change market emotions.

Here is the link to the video


These stretches of Mr. Market throwing up on a regular basis is what value investors spend all of that time reading the words of Buffett for. He never said it would be easy to be buying when everyone is telling you about recessions and Europe collapsing. And the great thing is that these days you don’t have to try and be a hero to make decent money over the long term in the stock market. Companies like Berkshire Hathaway (BRK.A)(BRK.B), Johnson and Johnson (NYSE:JNJ), Walmart (NYSE:WMT) and Wells Fargo (NYSE:WFC) are all available at attractive prices. With a diversified portfolio of companies like these you aren’t risking any chance of permanent loss of your capital. All you need is the ability to ignore Mr. Market or a few years and let time be your friend.

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