Words of Wisdom Highlights From Sterling's World Report

 

In every industry, there are experts with unquestionable wisdom and authority in their field. In the financial world, this expert is Bill Sterling. Sterling is a portfolio advisor for C.I. Funds and the chief international economist with Merrill Lynch. I've always appreciated his comprehensive analysis and astute observations on global investing. And given current market conditions, his perspective couldn't come at a better time.

 

In the aftermath of the brutal bear market of 2000/2001 and the September terrorist attacks, optimistic long-term scenarios may seem hopelessly out of touch with today's realities. Accordingly, I thought it would be worthwhile to revisit some of Bill Sterling's major themes encompassing the next 10 years.

Don't Forget About Demographics

Because demographic trends are more predictable than other economic forces, it has become one of the most important factors in the investment equation. Practically speaking, this means not overlooking baby boomers when making investment decisions.

Since boomers are by far the largest segment of the North American population, they have a major impact on the economy. For example, in the 70s and 80s, their demand for real estate pushed residential and commercial prices through the roof. Prominent lifestyle changes that the boomers experience are often reflected in the market. So as boomers age, demand for many of the products and services used by middle-aged citizens will rise. Keep your portfolios invested in financial services, healthcare, and consumer goods and serv- ices. Opportunities abound!

Technology and Telecommunications

This sector is expected to take the slow road to recovery, thanks to the competitive conditions created by the high investment capacity left over from the recent boom. The severity of this downturn was magnified by the effects of the normal business cycle and problems associated Y2K. But with the busi- ness cycle moving forward and Y2K two years behind us, this sector's outlook should eventually become favourable once again. growth/value argument The debate over the superiority of growth or value investing continues. Recently, growth stocks have been hard hit and value stocks have gained, but this could easily change. Over the years, the market has rallied between growth and value stocks. And it's difficult to predict when each style will be prosperous. Sterling's advice (which I agree with) is to maintain a complimentary portfolio of both investment styles. This way, at least a portion of your portfolio will be invested in the "winning" style.

Bill Sterling also comments that in this decade, equity markets will likely deliver returns closer to the long-term historical average of 10% and that single digit returns would be common if inflation remains below 0.5%. P/E ratios are expected to stay high compared to historical norms as interest rates remain at shockingly low levels.