Basic Reasons why investing in stocks is a good idea

1. Cannon Capital
Management
Why Invest in Stocks?
Or…Why not invest in something else?

2. 1/6/2013
7/5/2011
2/5/2010
9/5/2008
4/5/2007
11/5/2005
6/5/2004
1/5/2003
7/4/2001
2/4/2000
9/4/1998
4/4/1997
11/4/1995
6/4/1994
1/4/1993
7/3/1991
2/3/1990
9/3/1988
4/3/1987
11/3/1985
6/3/1984
1/3/1983
7/2/1981
2/2/1980
9/2/1978
4/2/1977
11/2/1975
6/2/1974
1/2/1973
7/1/1971
2/1/1970
9/1/1968
4/1/1967
11/1/1965
6/1/1964
You could put your money in the bank…
Six Month Bank CD Rates
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00

3. Bank Deposits
Advantages
• Sure Return
• Easy Access
Disadvantages
• Low Return
• Doesn’t beat inflation

4. 2011
2007
2003
1999
1995
1991
1987
1983
1979
1975
1971
1967
1963
1959
1955
1951
1947
1943
1939
1935
1931
1927
1923
1919
1915
1911
1907
1903
1899
1895
1891
1887
1883
1879
1875
1871
You could invest in Gold…
Gold Price
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0

5. Gold
Advantages
•
•
•
•
•
Source of value recognized across cultures
Tends to do well in inflationary times
Can be easily traded
Large value in small quantity
Non correlation with other assets

6. Gold
Disadvantages
•
•
•
•
Costs to store and insure
No dividend or interest
High Volatility
Low Return: Average 3% Per Year since 1871

7. Jun-2013
Sep-2012
Dec-2011
Mar-2011
Jun-2010
Sep-2009
Dec-2008
Mar-2008
Jun-2007
Sep-2006
Dec-2005
Mar-2005
Jun-2004
Sep-2003
Dec-2002
Mar-2002
Jun-2001
Sep-2000
Dec-1999
Mar-1999
Jun-1998
Sep-1997
Dec-1996
Mar-1996
Jun-1995
Sep-1994
Dec-1993
Mar-1993
Jun-1992
Sep-1991
Dec-1990
Mar-1990
Jun-1989
Sep-1988
Dec-1987
Mar-1987
You could buy Real Estate…
Housing Price Index
200
180
160
140
120
100
80
60

8. Real Estate
Advantages
• You can see & touch your investment
• You can borrow to increase your return
(90% borrowed increases return 10 times)
• You get tax subsidies
• You can be paid rent

9. Real Estate
Disadvantages
• Low Historical return: Average .3% per year
price appreciation in US homes since 1890
• Not diversified
• Maintenance & Property Taxes reduce income
• Value is not always clear
• Illiquid

10. You could buy bonds…
Long Term Government Bond Rates
16
14
12
Percent
10
8
6
4
2
0
1871.01
1891.01
1911.01
1931.01
1951.01
1971.01
1991.01
2011.01

11. Bonds
Advantages
•
•
•
•
Relatively Liquid
Returned 4.6% per Year since 1871
About half the volatility of stocks
Funds allow for broad diversification

12. Bonds
Disadvantages
•
•
•
•
Heavily government influenced
Highly correlated with many investments
Price Movement is mathematically complex
Trade in Large Size Blocks

13. Or…You might invest in stocks!
S&P 500
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1871.01
1891.01
1911.01
1931.01
1951.01
1971.01
1991.01
2011.01

14. Stocks
Advantages
•
•
•
•
High Return – 6.4% per Year since 1871
Liquid
Price is transparent
Can be easily aggregated into a diversified
portfolio
• Tax Benefits for retirement purposes

15. Stocks
Disadvantages
•
•
•
•
Highly Volatile
Emotional, high visibility
Complicated Wall Street World
Big consequences from small decisions

16. Why Invest in Stocks?
• Better long term return than the alternatives
• Easy to invest, buy and sell daily
• Tax Advantages for long term savers
All investments have their proper place, but a
large part of any investment portfolio needs to
have a considerable portion devoted to equities

17. Data Sources
• Bank Rates – Board of Governors, Federal Reserve, Selected
Interest Rates, Release H15
• Gold – World Gold Council, London Metals Exchange
• Real Estate – S&P Case Schiller National Home Price
Index, Wikipedia
• Bonds & Stocks – Compiled by Robert J. Schiller in “Irrational
Exuberance”, Princeton University Press 2005
Cannon Capital
Management