Questions You Should Ask Yourself About Investing in Stocks
No doubt investors would be thrilled to be able to identify the Shareholder Scoreboard's best performers of the future -- companies like NVR, Chico's FAS and others that have delivered excellent long-term returns to shareholders.
But how to choose stocks is the last question you should ask, not the first, as you periodically review your investment strategy.
LEADERS AND LAGGARDS
? Best Performers (1-, 3-, 5- and 10-year)
? Worst Performers (1-, 3-, 5- and 10-year)
? See the full Shareholder Scoreboard report.
Whether the stock market is rising, falling or just drifting sideways, there are four basic issues to consider:
? How should you allocate your portfolio between stocks and bonds?
? How much of the stock portion should you invest in actively managed mutual funds versus index funds?
? Should you select your own stocks or delegate the job to professional managers?
? If you select your own stocks, what is the most promising approach?
A proper mix of stocks and bonds requires a balance between the safety of Treasury securities and riskier, but potentially higher-return, stocks. What is suitable for your portfolio depends on individual circumstances, such as age, the value of your assets, your planned retirement date, expected savings before retirement, the size and timing of withdrawals after retirement, and your tolerance for risk.
The exceptionally fortunate can achieve their financial goals with the income from government bonds such as Treasury Inflation-Protected Securities (TIPS) and allocate remaining funds to stocks without much worrying. What sets TIPS apart from other government notes and bonds is that their principal is adjusted semiannually for inflation.
For most people, however, investing exclusively or largely in inflation-protected bonds or other safe securities will leave them short when they need to withdraw funds in the future. Because even the most carefully crafted asset-allocation plan will not overcome significant shortfalls from insufficient assets or an unaffordable lifestyle, the first step often should be lifestyle adjustments, including saving more before retirement, delaying retirement and cutting spending after retirement. If bond income still falls short, most investors must either resign themselves to a shortfall or pursue higher returns by taking on the greater risk of stocks.
Your investment time horizon, or the number of years before you expect to need your invested assets, is critical in determining the appropriate percentage of stocks for a portfolio. Steep market declines, like those from 2000 to 2002, can jeopardize the ability to meet near-term obligations such as college costs and unexpected emergencies. Most people should steer clear of stocks for funds they will need within five years.
If you value a good night's sleep, you might extend this no-equity policy to 10 years or more. And even after 10 years, the return on stocks could turn out to be less than from bonds, thereby widening rather than narrowing the shortfall.
Stocks vs. Bonds
Over the past eight decades, the compounded annual inflation-adjusted return on a broad index of stocks has exceeded the return on Treasury bonds by about five percentage points -- in the neighborhood of 7% for stocks compared with just over 2% for bonds, by most estimates. Pointing to this historical record, financial advisers typically suggest that long-term stock investors can tolerate the volatility in stock prices. The longer the investor's investment time horizon, the less risky are stocks, is the reasoning behind the near-universal advice that younger people should allocate large fractions of their portfolios to stocks, and gradually shift toward bonds as they grow older.
But the conventional wisdom that stocks are safe in the long run assumes that future returns will look like past returns. This assumption is very risky. While average annual returns on stocks have been higher than bond returns over long historical periods, the margin has varied considerably over 10-year periods and even over 30-year periods.
Many prominent academics and people in the investment industry now estimate that the future margin for stock returns over bond returns will be well below historical levels. Estimates range from nothing to three percentage points annually, with most in the neighborhood of two to three percentage points.
Prudent investors need to consider not only the possibility that returns on stocks will be more modest in the future, but also the chance, however small, that stocks could actually underperform bonds over their investment time horizon. For example, let's say there is a 90% chance that stocks will outperform bonds by two percentage points and a 10% chance that stocks will underperform by one percentage point annually. An investor who expects to fall short of his financial requirements with a 100% allocation to bonds can allocate more to potentially higher-return stocks. However, holding more stocks also would increase the size of the shortfall if stocks underperform bonds. Investors need to assess this tradeoff and weigh the best possible asset allocation given their circumstances and risk tolerance.
Which Type of Fund?
Most people who decide to invest in stocks should start -- and perhaps end -- with mutual funds rather than individual stocks, for reasons we'll get to shortly. The big decision in mutual funds is how much to invest in actively managed funds versus index funds.
Most actively managed funds are destined to trail the performance of index funds. The logic is simple. Index funds earn the market return. Before taking into account costs, actively managed funds as a group must also earn the market return because together they are the market. But costs (operating expenses, management fees and brokerage commissions that are expressed as a percentage of a fund's assets) are typically 1.5 to 2 percentage points greater for actively managed funds than for index funds. Most active managers simply don't have the stock-picking skills to overcome that cost differential.
For the investor satisfied to earn broad market returns rather than face the risks of trying to outperform the market, index funds are the clear choice. Studies consistently show that index funds outperform more than 75% of actively managed funds over almost any reasonably long time period, such as five years or more. The index-fund advantage is even greater if failed actively managed funds -- those that have closed or been merged out of existence -- are included. In addition, there is no reliable way to predict which funds will outperform the market.
For those who still want to bet on active management despite the long odds, there's more to it than choosing funds solely on the basis of low expenses. While top-performing funds do incur below-average costs, individual funds continually move in and out of the ranks of top performers. Investors can try to identify managers with superior stock-picking skills that more than compensate for the cost of active management. There are managers who do deliver -- even over extended periods. But they are a rare breed, and it's extraordinarily difficult to identify them in advance.
Do It Yourself?
When it comes to investing in individual stocks, only people with considerable time, discipline, intellectual independence, a solid understanding of business economics and financial analysis, and a long investment horizon should consider the do-it-yourself option. These requirements eliminate a substantial majority of investors. For those who remain, the challenge is daunting.
Brokerage commissions and the extensive time required for research make it impractical for investors with smaller portfolios -- say, less than $100,000 -- to hold a sufficient number of stocks to be reasonably diversified. The risk of placing bets on just a few stocks is not higher short-term volatility, but rather underperforming index funds or broadly diversified stock funds over the long term.
Investors with larger portfolios face a different dilemma. If they include too few stocks they take on unacceptably high risk. But greatly expanding the number of stocks makes it impossibly time-consuming to monitor holdings, and also limits the chances of outperforming the market. Investors should not expect to do better than the market as a whole without sacrificing some diversification by making relatively big bets on a few stocks.
It is possible to put a portion of a portfolio in a relatively small number of individual stocks without unreasonably raising overall risk. The cost saving from replacing actively managed stock funds with index funds provides enough of a cushion to allocate a small amount to individual stocks without lowering overall expected return. Anyone making that choice, however, would want to do better than the index-fund alternative -- again, a challenge with long odds.
Finding Companies
Finally, we get to the fourth question: how to find the best-performing companies. For those who decide to select their own stocks for a portion of their portfolios, there are two basic approaches. The first is to follow the overwhelming majority of institutional investors and Wall Street analysts who focus on short-term corporate performance, particularly quarterly earnings and stock-price momentum. But even full-time professionals who possess expertise, resources and access to more timely information rarely outperform index funds over time, and it's the long-term results that matter. Also, it's especially difficult to achieve superior returns when everyone is fishing in the same pond.
A more promising approach employs the discounted cash-flow model, which values a company's shares by its expected net cash flow, or the difference between what a company takes in from operations and what it spends. A dollar in hand today is worth more that a dollar received in the future. This is the way financial assets are valued in well-functioning markets such as those for bonds and options.
But if short-term earnings surprises materially affect stock prices, why should investors base their decisions on a company's long-term cash-flow prospects? The simple answer is that stock prices ultimately depend on cash flow even if earnings surprises trigger sizable stock-price responses in the short run. Without cash flow to fund future growth and pay dividends, a company's shares are essentially worthless. Market prices reflect this by bestowing relatively large capitalizations to companies that demonstrate cash-generating ability and lower capitalizations to those with less impressive track records and prospects. Contrary to popular belief that the market prices stocks on a company's short-term outlook, most stocks require more than 10 years of value-creating cash flows to justify their current prices.
Most investment professionals readily acknowledge that discounted cash flow is the right way to value stocks, but they understandably contend that estimating distant cash flows is too time-consuming, costly and speculative. As Warren Buffett says, "Forecasts usually tell us more of the forecaster than of the future." Where, then, can you turn?
The ideal solution would enable investors to use the discounted-cash-flow model, but without having to forecast long-term cash flows. This is precisely what "expectations investing" does. Instead of forecasting cash flows, this approach begins by estimating the cash-flow expectations embedded in the current stock price or, equivalently, the future performance needed to justify today's price. You can then assess whether the implied expectations are reasonable and decide whether your expectations are sufficiently different to warrant buying or selling shares. Only investors who correctly anticipate changes in expectations earn superior returns. (There is more information about how to estimate price-implied expectations and identify investment opportunities at
www.expectationsinvesting.com, a Web site based on a book I wrote in 2001 with Michael J. Maubossin.)
Not only do investors buy and sell company shares, but so do the companies themselves, in the form of stock offerings and share buybacks. Corporate decisions based on poor estimates of a company's value can trigger shareholder losses that offset the hard-earned gains from business operations. For example, substantial shareholder value can be destroyed if companies issue new shares when the market is undervaluing their stock, or if they repurchase shares when shares are overvalued. Well-managed companies, despite possessing information not ordinarily available to investors, begin their analysis by assessing the performance expectations embedded in their stock price. An individual investor would be well advised to adopt this corporate "best practice." (A case study by Francois Mallette, "A Framework for Developing Your Financial Strategy" is available at L.E.K. Consulting's Web site,
www.lek.com.)
Professional investors almost invariably have better and timelier information sources than individual investors. The individual investor's best hope for identifying top-performing Shareholder Scoreboard companies of the future is to foresee the long-term economic implications of currently available information about events such as a major acquisition, regulatory approval of a new drug, the appointment of a new chief executive or a government antitrust action.
Two basic factors shape the returns from a stock trading above or below what you believe it to be worth. The greater the estimated mispricing, the greater the potential return, though the stock may turn out not to be as mispriced as you believe. The second factor is the time it takes the stock price to move to the target price: The longer it takes, the lower your return. For example, suppose you estimate that a stock priced at $80 today is worth $100. An increase to the $100 target price in one year yields an impressive 25% return, but if it takes five years to reach the target, the return drops significantly, to about 5% annually.
In an earnings-driven market, investors must rely on future reported earnings to correct mispricing, which can take some time to materialize. As John Maynard Keynes cautioned more than 75 years ago, "Markets can remain irrational longer than you can remain solvent." Investing in stocks is risky and not for the unqualified or the fainthearted.
Mr. Rappaport is the Leonard Spacek Professor Emeritus at Northwestern University's J.L. Kellogg Graduate School of Management. He directs shareholder value research for L.E.K. Consulting and is co-author of "Expectations Investing: Reading Stock Prices for Better Returns" (Harvard Business School Press, 2001). He lives in La Jolla, Calif.
股市投资者应扪心自问的几个问题
毫无疑问，找到那些未来市场表现最好、并且能够带来长期高额回报的股票是一件让投资者兴奋不已的事情。不过，在你定期审视自己的投资策略时，如何挑选股票应当是你问自己的最后一个问题，而不是第一个问题。
无论在股市上涨、下跌，或仅仅是横盘整理的时候，以下四个基本问题都是你要考虑的。
-- 如何分配股票和债券投资的比例？
-- 如何确定积极管理型基金和指数基金中股票投资的比例？
-- 是应该自己挑选股票，还是应该请专业经理人为你挑选股票？
-- 如果自己挑选股票，应该采用哪种最合适的方法？
要保证股票和债券的适当比例，就需要在安全的美国国债和高风险、高回报的股票之间寻找平衡。什么样的投资组合适合你取决于个人的具体情况，比如年龄、个人资产、计划退休的时间、退休前计划达到的存款额、退休后提取退休金的额度和时间、以及你对风险的耐受力等。
特别幸运的人通过投资通货膨胀保值美国国债(Treasury Inflation-Protected Securities, TIPS)就能获得预想的收益，这样他能够毫无顾忌的将其他资金投入到股票中。TIPS和其他政府票据、债券的不同之处在于，它的本金数额会根据通货膨胀情况每半年调整一次。
不过，对于多数人而言，如果将资金全部或大部分投入到通货保值债券、或者其他安全的证券中，他们在未来需要将投资兑现时可能会遇到麻烦。因为即便是最精心制定的资产分配计划也无法克服资产不足和奢侈的生活方式带来的影响，因此第一步要做的事情通常就应当是调整生活方式，包括在退休前存更多的钱、推迟退休以及在退休后减少支出。如果债券收益还是无法达到盈利目标，对于多数投资者而言，办法有两种，或是乾脆这这样了，或是通过投资风险较高的股票来获得更高的回报。
要确定一个投资组合中股票投资的合适比例，其关键就是要知道你投资的时间范围，或者说是在你需要使用所投资的资产前你进行投资的年限。像2000－2002年那样的股市暴跌情形会危及你的财务状况，使你在应付孩子大学学费和紧急情况等近期支出时显得捉襟见肘。多数人都应该保证自己5年内需要用到的资金没有投到股市中。
如果你希望晚上能睡得踏实，可能还会将这个时间延长至10年以上。即便是在10年以后，股票的回报率可能会不如债券，这样你资金不足的状况不是得到缓解，而是更加严重。
根据多数的统计估计，在过去80年里，综合股票指数经过通货膨胀调整后的复利年回报率较美国国债的回报率高出5个百分点－－股票回报率在7%左右，而美国国债的回报率仅略高于2%。根据这这一点，金融顾问通常会建议长期股票投资者去忍受股价的波动。投资者的投资期限越长，股票的风险就越小，正是这样的理念支撑了一条几乎是放之四海而皆准的理财建议：年轻人应该将很大一部分投资放在股票上，之后随著年龄的增长逐步再转移到债券上。
不过，这种认为股票从长期看是安全的传统观点有一个假设前提：即未来的回报会和过去的回报一样。这是一个冒险的假设。虽然从以前很长一段历史看，股票的年平均回报率要高于债券的回报，但从10年、甚至30年的时间看，它们的回报率差额发生了很大的变化。
许多著名的学术机构和投资行业人士目前估计，未来股票和债券之间回报率的差距将低于历史水平。他们估计的差距从每年0到3个百分点不等，多数人预计会在2%-3%左右。
审慎的投资者不仅要考虑到未来股票投资回报率可能会减少，并且还要考虑到在他们的投资期限内，股票表现不如债券的可能性，无论这种可能性有多小。比如，假设股票年回报率高于债券回报率两个百分点的概率是90%，而股票年回报率低于债券回报率1个百分点的概率是10%。一个不想把投资全放在债券上的投资者，会把更多的资金投入到潜在回报率更高的股票上。不过，如果股票表现不及债券，持有更多的股票会使你的手头更加紧张。投资者需要衡量这样做的得失，根据自己的情况和风险耐受力确定最好的投资分配方案。
多数决定投身股市的人首先、可能也是最终都应该考虑投资共同基金，而不是投资个股，其原因我们随后就会讨论。关于共同基金投资的一大决策就是要决定将多少资金投在投资积极管理型基金上，以及将多少投在指数基金上。
多数积极管理型基金都会追踪指数基金的表现。理由很简单。指数基金的回报也就是整个市场的回报。在考虑成本之前，积极管理型指数基金从总体看也定会获得与市场相同水平的回报，因为它们加在一起就构成了整个市场。不过积极管理型基金的成本（运营费用、管理成本、经纪佣金占基金总资产的比例）要较指数基金成本高出1.5至2个百分点。多数积极管理型股票基金甚至连消除这种成本差距的选股技巧都不具备。
如果投资者安于获得与大盘相同的回报，而不愿冒一定的险去跑赢大盘，那么指数基金显然是他们的最佳选择。不断有研究表明，从一定的时期比较，比如5年或更长，指数基金较75%以上的积极管理型股票基金的表现都要好。而与一只不成功的积极管理型股票基金相比，指数基金的好处就更加突出了。另外，现在还没有一种可靠的办法能准确预测哪只基金会跑赢大市。
虽然从长期看，积极管理型股票基金表现不及指数基金，但有些投资者仍想在这上面博一博，对于这些人，他们不能仅仅按照费用的高低来选择基金。虽然表现最好的基金其成本的确低于平均水平，但风水轮流转，没有哪只基金能够一直占据头名的位置。投资者也可以试著挑选那些有高超选股技巧的经理人，他们精心挑选的股票不仅能弥补积极管理的成本，而且还会绰绰有余。的确有一些经理人能做到这一点，不过他们可谓凤毛麟角，找出他们非常困难。
如果想自己投资个股，那么投资者必须要有大量的时间，而且必须自律、思想独立、能对经济和金融进行深入分析并打算投资股市。绝大多数投资者都不符合上述要求。对于那些为数不多的符合要求的投资者，也将面临严峻的挑战。
鉴于经纪佣金高昂、并且需要有大量时间研究市场，因此对于投资额度较小（比如不足100,000美元）的投资者，手里的股票数量很难实现真正地多样化。将赌注押在少数几只股票上的风险并不比股市的短期风险大，但从长期看，其表现将远远不及指数基金或其他涉猎广泛的股票基金。
拥有较大投资的投资者面临著其他的问题。如果他们投资组合中的股票太少，将会面临难以承受的风险。如果股票太多，他们又会疲于监控每只股票的表现，并且还会使跑赢大市的几率受到限制。如果投资者不愿以股票多样性作为代价，将较多资金押在少数几只股票上，就不应该对跑赢大市抱有过多的奢望。
最后，我们讨论第四个问题：如何找到表现最好的股票。对于那些想自己为投资组合挑选一部分股票的人而言，这里有两个基本的方法。首先就是要跟随在绝大多数机构投资者和关注公司短期表现（特别是季度收益和股价涨跌势头）的华尔街分析师后面。不过，即使是经验、资源丰富、消息灵通的全职专业人士，随著时间的流逝，也很少有能超过指数基金的，从长期看就能得出这一结论。另外，当所有的人都在同一个池塘里钓鱼时，要想获得格外优异的回报也是极为困难的。
一个较为有用的办法是使用现金流量折现模型，它用公司预期的净现金流来为股票估值。今天的1美元比未来获得的1美元更加值钱。这也是债券和期权等运行较好的市场用来为金融资产估值的方法。
如果出人意料的短期收益对股价产生了巨大影响，为什么投资者应该根据公司长期现金流来做出投资决策呢？原因很简单，股价最终还是由公司现金流来决定的，即使短期内出人意料的收益状况引起了股价的大幅波动。如果没有现金流为公司未来的发展和派息提供资金，公司股票从根本上讲是没有投资价值的。市场股价变动也反映出这一点，有能力获得现金的公司其股票会吸引来大量的投资，而过去业绩和前景均不被看好的公司，投资其股票的人也会较少。
专业投资者与散户投资者相比，其获得的信息总是更好、更快。散户投资者以后要想找到表现最好的股票，最好的就是能预期到目前一些重大收购、新药批准、新首席执行长任命或政府反垄断行动等重大事件的长期经济影响。
有两个基本因素决定了一只股价高于或低于你心理价位的股票的回报。预计的股价偏差越大，可能获得的回报也越多，虽然股价偏差的程度和你想像的不太一样。第二个因素是让股价达到目标价位的时间，时间越长、回报越低。比如，假设你估计一个今天股价为80美元的股票能涨到100美元，如果它只用了一年的时间就涨到了100美元，那么你一年获得回报率将是25%；但如果它花了5年，那么回报率就会降到每年5%左右。
在一个受收益驱使的市场，投资者必须依赖未来公布的收益来调整股价偏差，这可能需要一些时间来实现。就像
凯恩斯(John Maynard Keynes)在75年前警告的那样，股市保持非理性的时间要比你有偿付能力的时间长，股票投资充满风险，不适合或者胆小的人最好不要碰它。
