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Certainly, if you haven't been in the market for the last few years, you've missed some
fantastic returns. As we look forward, I think you can still expect reasonable returns going
forward. The days in which we can expect fantastic returns are probably past, unfortunately.
The stocks don't look expensive. Remember, the markets are record high, but profits are
record high, too. They're still growing, and we think there's every reason to expect them
to continue to grow, so I think it's a reasonable time to be in stocks. I think it's probably
too early to call an end to this great move we've seen over the past four or five years.
I don't think there's a compelling case to be made for either growth or value at this
point. Value has had the advantage in the last couple of years, particularly as investors
have got their confidence back. More recently, we've begun to see some better performance
from the highest-growth names, but I do think you want a balance. I don't think it's one
of those times when you can really point convincingly to either growth or value and make a major
allocation in that direction--good managers in each space, I think, makes the most sense
right now. Really, what most of the conversation comes down to these days is financials versus
technology. The value index is still very heavy in financials; the growth index, much
heavier in technology, although some of those big tech companies are beginning to show up
in value as well, so I think both groups are interesting. The financial sector is still
recovering, of course, from all of the turmoil over the past five years. Valuations for big
financial companies, not as attractive as they were, are still pretty interesting, and
financials, of course, will benefit, when eventually, as sure they must, interest rates
head higher, but technology, too, technology stocks trade at some of the lower prices we've
seen in recent times. And a lot of very interesting trends are going on in technology for the
most growth-minded, too, so again, if you just compare those two key sectors, it's pretty
hard to make a convincing choice either way. There are opportunities in both areas. The
good headline that doesn't get written is that American companies have never been in
better shape, so profitability is at a record high, companies have been, in this country,
have been major beneficiaries of globalization, and there's every sign that those trends are
in place and are continuing, and that profits will continue to rise, helped, too, we think,
by increasingly, signs of modest strength in the U.S. economy, it'll help some of those
more cyclically orientated groups. So profit growth has to slow down, that's clear, and
it is slowing down, but we still think companies have got room to grow, and we still think
that will benefit stock prices. Some of the cyclical stocks, particularly the more domestic
ones, have been good places to invest in the last year, but if you step back and look at
things on a longer-term point of view, the valuation of companies that have more economic
exposure is still pretty depressed, and companies that have exposure to the global economy,
as opposed to the U.S.--some of the basic industrial companies, for example--well, they're
even more depressed. So there is definitely an opportunity there if investors can continue
to get a little bit more comfortable in the level of growth in the world economy. We think
they will, so our bet is that those stocks are attractive, and that you really more than
pay to own them. Meanwhile, some of the places where investors have been most comfortable,
almost hiding over the past two or three years in difficult times--the utilities stocks,
for example--some of the high-yielding stocks in the real estate sector, they just don't
look as attractive. Actually, volatility, recently, has been pretty low by long-term
standards. I think the key thing to accept is that there will always be volatility from
investing in the stock market. I think an investor should go into any given year expecting
that at some point, for reasons that aren't yet clear to them, they will suffer a drawdown
of 8, 10, 12 percent. That's just normal business in the stock market. So far, this year, as
we speak, the biggest drawdown has been more like 5 to 6, so it has actually been a pretty
calm year so far. There's always going to be that level of volatility, but we don't
have to live through a 2008 every year, and I don't think that volatility should put people
off the long-term attraction of stocks as they look to build wealth. We think the outlook
for the market is very reasonable. The great returns in the last five years, well, they're
going to be tough to repeat, but we still think where profit is growing, valuation is
sensible, cash flow is strong, and dividends are growing, too, that's a pretty sensible
backdrop for being committed to the market and staying committed to it, through the volatility,
that's always there. For active managers, well, there are always going to be opportunities,
and, as we look at it, there are still plenty, and we're excited about what we see ahead.