This article in Fortune shows some key differences in how non-value investors look at the market versus how we do.  I’m going to address the authors 6 reason below:

1) Retirement Savings- The author cites the fact that the market has been flat over the last 15 years because so much retirement money has come into the market.  Never before have companies and individual investors held more cash and cash equivalents than over the last couple of years.  Valuations are very reasonable in relation to historical figures, and profits have been growing.  Retirees have to invest somewhere unless they are willing to risk having a large percentage of their purchasing power evaporate due to inflation, and with bonds yielding nothing, it makes sense to have a considerable portion of their money in stocks.  The key is to not be speculating and to be buying stocks on a value basis.  This means buying companies that have strong balance sheets at low P/E, P/B, and P/FCF prices.  This provides more protection on the downside while allowing you the best chance to outperform over time.  Of course retirees should have ample funds in very liquid cash or cash equivalents to deal with any near term withdrawals, but buying long term muni’s with interest rates at all time lows after a 30 year bond bull market makes no sense when interest rates have nowhere to go but up, devastating the purchasing power of the retiree.  People are living longer so I think expectations that there will be a mass exodus of the stock market due to demographics are highly unlikely.

2) US companies benefit as much as anybody else from globalization.  They have been able to improve margins drastically and the flow of funds to the best opportunity and the best value is not something that is going to negatively impact stocks for value investors.  Value investors wouldn’t buy expensive stocks traded in Shanghai for instance where they are inflated due to the restrictions on Chinese citizens investing outside the country.  Many value investors buy in Hong Kong or Singapore to invest in more fluid markets.

3) Technology companies do have much better access to capital then they had 15 years ago.  While companies like MSFT, AMZN, and Dell have produced staggering returns, the majority of the money is made from insiders.  Let’s not forget and the hundreds of other complete bombs which were sold primarily to individual investors at terrible prices.

4) Taxes are always an important consideration for investors but they are also a relative issue.  If the U.S. tax code for investors is competitive with other countries, and other securities such as bonds, than it shouldn’t have an adverse effect on stock prices.

5) While rising interest rates are a huge concern for profits, they are far worse for fixed income.  The rule of thumb is that a 1% rise in interest rates reduces the price of a 30 year treasury bond by 16%, so bonds make no sense whatsoever.  It is completely worthless to recommend avoiding stocks on such an absolute basis without providing viable investment options.  Someone who invested in value stocks as defined by low P/E, low P/B, and low P/FCF during 1998-2003 saw far better returns on average than those that just bought an S&P 500 index, or the Nasdaq 100.

6)  Most people have jobs and don’t save enough money.  Being over-correlated is certainly not your biggest concern.  If I worked at a bank I wouldn’t recommend putting 80% of my money in bank stocks, avoiding stocks completely because one has a job does not strike me as overly intelligent.  Once again you must compare stocks to other opportunities including cash.  Keeping your money in cash in an inflationary environment is one of the easiest ways to lose money that I could possibly imagine. The only things worse would be high fee products such as some managed futures funds, or day trading which would likely accelerate the losses in my opinion.