Stocks vs. Bonds, 200 years

Some weeks ago I had two different conversations with friends. The issue: whether Greek bonds would be a good investment given the yields they are being offered at. I then argued that I didn’t think it was a safe investment, that many countries had defaulted payments, and as a value investor in the making I tried to explain that a much better investment would be to find out there some great stocks at a big discount.

I was also looking for some graphics to send them to prove the point. I had seen those graphics at the annual investors’ forum of the asset management firm Bestinver in different years. They represented how different the outcome of an investment would be for a person living either in Germany in the 1920-30’s or in Argentina in the last 15 years in case this person had invested in the stock market or in government bonds, supposedly safer.

In both cases the investment is much better off when it’s composed of stocks, as they represent a portion of a real company that continues to operate after the crisis and the currency devaluation/hyperinflation period that typically follows. The value of the investment in bonds is suddenly reduced to nearly zero… At that time I didn’t find any of those graphics in the Net, but the other day I found a similar one. Here it goes (note the scale is logarithmic):

Stocks vs. Bonds, 200 years comparison.

Please, note the difference especially between German and Japanese bonds and stocks. But also with US and UK stocks and bonds the difference persists.

The managers of Bestinver year after year repeat the same example: in those situations is much better to be invested in real assets, be it portions of an enterprise (stocks), chairs, and pencils, even houses… all these are assets that once the crisis is over will retain the value they have. However the paper money has no value once the nominal value is devalued.