Geoff Considine

10-Year Compounded Return of Key Asset Classes

This is a great article--and good comments (above). The big question is whether the recent few years herald a real change in the growth and risk/return prospects of emerging markets and overseas markets as a whole. This point is not made often enough. The time will come when emerging economies stabilize and generate higher returns relative to risk--and perhaps it is here now. This is a major timing issue. There are greater risk and return prospects from a range of non-U.S. economies--this makes sense. Do the investors loading into these countries understand this--the risk side? Many don't. It has often been said that the most dangerous words uttered with regard to capital markets are "it's different this time" and this is exactly what many of the people encouraging very high levels of overseas investing are saying. It may be different this time, but that is a big bet and an awful lot of investors have learned hard lessons from betting against reversion to the mean in markets. My own calculations, using Monte Carlo portfolio models, suggest that the returns that people have gotten over the past several years in foreign and emerging markets (as well as REIT's) are too high relative to the volatility that people have been carrying. This suggests that some portion of the gains in the past few years are 'froth' and will disappear in the longer term.