Skip to main content

BOSTON (TheStreet) -- When Brian Peery, a portfolio manager at Hennessey Funds, scans the investing landscape since 9/11, he can't help but fear for the future.

After the so-called "lost decade," in which the U.S. stock market essentially returned nothing to investors amid bubbles and busts, some are concerned about a repeat, hurting Americans who have already seen their 401(k)'s and private portfolios dwindle at the doorstep of retirement.

"I'm worried we're going to lose an entire generation of investors who look at it like it's speculating," Peery says, adding that more gold is traded on a single day than exists in the world. "If you look at the past 10 years, whether it's the Internet or housing or commodity booms, you're not investing. It's speculating."

It's not hard to understand why Peery feels that way. The

S&P 500

, considered the best measure of U.S. stock performance, has climbed 10% in the past 10 years, while gold has been on a tear. In the aftermath of the 9/11 terrorist attacks, gold traded for as little as $280 an ounce. Now, the precious metal has set records above $1,900 an ounce.

Like Peery, nearly everyone knows someone who was affected by the al-Qaeda attacks on the U.S. in 2001. Neil Hennessy, founder of Hennessy Funds, was at the World Trade Center when the planes hit the buildings that fateful Tuesday.

"It's a really difficult time emotionally looking back at it," Peery says. "But when you look at it from an investment perspective, you have to take the emotion out of the equation."

Peery isn't alone in his view of investing versus speculation. This back-and-forth may very well be the story of the stock market over the next decade. Consulting firm Bain & Co. noted in a recent research note that the average holding period for a stock is about eight months, down from an average holding period of eight years in 1960.

Reversing the get-rich-quick psychology in speculation won't happen overnight, but those who still believe in investing in a post-9/11 world can benefit now from opportunities in the stock market, investment managers say. Investing in the next decade can be successful if Americans simply



"Stocks are not particularly expensive, no matter how you define it," says Lewis Altfest, chief investment office of Altfest Personal Wealth Management. Altfest notes that S&P 500 stocks have a price-to-earnings ratio of 12, below the historical P/E ratio of 15.

Plain vanilla stocks, those that haven't done well since 2000, could pay off in the next decade for investors who concentrate on larger companies with strong positions in their markets and big dividend yields, Altfest says.

Scroll to Continue

TheStreet Recommends

"The yields on dividends, especially on large-cap stocks, exceed the yields on debt," Altfest adds. "That is not normally the case. In other words, what appears to be a risk-free rate as low as it is, stocks have room for expansion. Having money abroad is a good idea, but I would disagree with the sentiment that the U.S. will have no growth for the next 10 years."

That strategy has a larger number of fans, including Rob McIver, co-portfolio manager of the Jensen Portfolio. That investing style is important, given that the

Federal Reserve

has said it would keep interest rates near zero into 2013.

"The unemployment rate is higher than it was 10 years ago. But if you look at corporate earnings in absolute terms, they're far superior to what they were in 2001," McIver says.

McIver plays down the fear of the "lost decade" by noting that the past 10 years were dominated by irrational exuberance, which began a few years before the 9/11 attacks during the dot-com boom.

"What's effectively happening is that investors are so short-term focused is that they're trying to second-guess the market. That can be a zero-sum game," McIver says. "We saw that happen in 2001, 2008 and 2009. When things go bad, they go bad very rapidly and a lot of people are hurt very suddenly. The best way to win that game is to not play it."

For McIver, it's a marathon, not a series of sprints from one sector to another from one quarter to the next. McIver is a high-conviction manager with only 28 companies in his portfolio. He typically holds these stocks for seven years.

That long time horizon -- something he's evangelical about when he speaks about investing -- has helped McIver to find deals at some of the darkest times for investors.

"Those tragic events on 9/11 have an impact on investor confidence and, therefore, the stock market," he says. "For long-term investors like us, that was our opportunity to buy very high-quality companies when shares were on sale."

Among the companies with strong balance sheets, growing cash flow and durable competitive advantages, McIver sees plenty of long-term value in drinks and snacks company


(PEP) - Get PepsiCo, Inc. Report

, consultant

Cognizant Technology

(CTSH) - Get Cognizant Technology Solutions Corporation Class A Report

, footwear maker


(NKE) - Get NIKE, Inc. Class B Report

and medical-technology company

Becton Dickinson

(BDX) - Get Becton, Dickinson and Company Report


"In September 2001, Pepsi's forward P/E was 29.2 times. Today, it's 13.5 times. And over that decade, the company's earnings per share have appreciated by 140%," McIver says. "Cognizant's peak forward P/E has come down only slightly since September 2001, yet over that same decade Cognizant's earnings per share have increased 2,500% and its share price is up 1,600%."

Hennessy Funds' Peery uses other valuation metrics to point out how cheap U.S. equities are. For example, the price-to-sales ratio of the S&P 500 is down 22% from a decade ago, allowing investors to pay less per dollar of revenue for equities.

"Price to book is 39% lower, price to earnings is 39% lower, and price to cash flow is nearly 47% lower," Peery says. "That's telling me, on the whole, that the market is trading at a pretty severe discount to what it was just 10 years ago."

That doesn't mean stocks won't get cheaper. Investors are rightfully fearful of the immediate future, given stubbornly high unemployment and continued housing-market woes in the U.S., as well as sovereign-debt concerns worldwide. U.S. political gridlock is also a major risk, especially heading into an election year.

However, considering values, "now is not a bad time to be looking for some relative bargains," Peery says.

"If you want some safety and yield, there's nothing wrong with buying something like


(CVX) - Get Chevron Corporation Report

, which is yielding more than the 10-year U.S. Treasury," Peery says. "On the dividend side, there are some great yield plays. If you buy just the dogs of the Dow, you get a 4% yield."


5 Homeland Security Stocks That Make Safe Buys

On the other hand, Peery, like many investors, are hard-pressed to make a case for owning bonds over the next few years. Today, the 10-year U.S. Treasury is yielding less than 2%.

"What you're telling bond investors is that, for the next 10 years, they've got a lost decade coming if you hold to maturity," Peery says. "It scares me that a lot of retail investors look at the bond market and put their money into safety, especially when you're getting negative real yields on a three-month Treasury. You're better off keeping your money under a mattress."

Looking out over the next decade, Peery sums it up best for investors put off by a market dominated with speculation, volatility and high-frequency trading.

"If you go back to common sense -- if you just hold on and try not to time the buying and selling -- there are opportunities here," Peery says.

-- Written by Robert Holmes in Boston


>To contact the writer of this article, click here:

Robert Holmes


Readers Also Like:

Wall Street Remains in Limbo, Post Sept. 11

The State of World Trade Center Real Estate

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.