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online.wsj.com - 11/12/2008

Is Now the Time to Buy Stocks?

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The markets are chaotic. The stock market (S&P 500) is down 34% for the year, and 17% in October alone. Volatility, which measures how much stocks move unexpectedly in a year, is even more dramatic. It's usually around 15%, but daily volatility in October was 75% on an annual basis. Meanwhile, ...

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Time to Buy Stocks?
Greg Mankiw's Blog — ... From University of Chicago economist John Cochrane.

How Are Stocks Like Bonds?
EconLog: Library of Economics and Liberty — From John Cochrane : The standard portfolio rule says that your stock percentage should rise with the expected return (stocks and bonds) divided by squared return volatility. So, if you were happy with a 50/50 portfolio with an expected return of 7% and 15% volatility (standard numbers), 50% volatility means you should hold only 4.5% of your portfolio in stocks! ...Many sophisticated investors and hedge funds who use this standard formula are getting out, waiting for at least a return of lower volatility before getting back in. The answer to this paradox is that the standard ...

Investment advice for a wild market
Econbrowser — ... John Cochrane instead attributes the big swings in the historical P/E to changes over time in the compensation that investors require for risk. According to Cochrane's view, people understood that they'd be getting less than a 6% expected real yield on stocks if they bought a few years ago, and that stocks purchased today offer you better than 6%. John summarizes his investment advice this way: ...

This and That: Surviving the Crunch
Canadian Capitalist — The Wall Street Journal features a boatload of articles on surviving the credit crunch and the recession. Another recent Wall Street Journal column asked and answered a timely question: Is Now the Time to Buy Stocks? Ellen Roseman is soliciting comments on where you stand on new security measures that require a PIN to validate a credit card sale. Thicken my Wallet reminds investors on the importance of dividends in equity returns. Jon Chevreau reported that the CRA has revoked the charitable ...