Turning back to stocks for a second, you’ve been an advocate of high-dividend stocks in the past. Is that still your view?
Yes. People are worried about what the taxes are going to be on dividends. My belief is that there will be, at the end of the day, a lower tax on dividends. I’m not going to say 15%. My prediction is close to 20%. But one should remember that that high tax only applies to high-income people, those making over $250,000, and of course is not applicable to the 50% of all dividend-paying stocks that are held in 401(k)s, IRAs, and other tax-exempt accounts. Those account holders don’t care at all about the dividend tax. We’ve had good returns from dividend-paying stocks when the tax rates were 80% and 90% in the 1960s and ’70s. If they go up to 20% or even higher, with interest rates extremely low, high-dividend stocks are going to be the assets of choice for the retiring baby-boomers.
Given the sovereign debt risk in Europe and the risk of a slowdown in Chinese growth, should US-based investors be any less diversified and more concentrated in dollar-denominated holdings at this point?
Not necessarily, because those two markets are now selling at extremely reasonable price-to-earnings ratios. The Shanghai composite is selling between 9.5- and 10-times earnings. This is very reasonable and very good. Europe is selling for 10- to 11-times earnings. Europe’s periphery is going to be a problem for a while. Spain, Greece, Portugal, even Italy are going to be depressed.
I call for a lower euro. That’s going to help growth in Europe, and I would pick those firms that are concentrated in the export industries, because with a lower Euro they’re going to do extremely well. They’re selling at very reasonable prices. There are a lot of opportunities in Europe, despite the slow growth. They’re selling at very, very good prices, so do not remain dollar-centric. The US is going to be the strongest developed economy. But given the prices abroad, it’s worth diversifying internationally.
The 5th edition of your book, “Stocks for the Long Run,” is coming out next year. Can you provide any hints as to where those revisions or expansions are going to focus?
It’s going to be the broadest and biggest of all the revisions. The first edition came out in 1994.
Between the last revision in 2007 and this one, we had the financial crisis, the question of the “new normal,” and all the rest. The first three or four chapters of the new edition are devoted to looking at what caused the crisis and what the outcome of the crisis is going to be. Some of my views about demography and technology I mentioned previously will be more developed in the book. I also look at correlations between asset classes, how they’ve changed during the crisis, and what that means for your portfolio allocation.
I’m giving you little hints about what new material is in the book. Of course, it will update all the other data, including things like calendar anomalies, but it’s going to be a very major revision.