Large Cap Stocks Relative Attractiveness Examined

By on July 6, 2011

It’s no secret that large cap multi-national stocks have had a bad decade of performance.  This has led to them being priced at valuations that appear relatively attractive compared to other investment alternatives.

Felix Salmon, writing for Reuters and responding to a reader comment, questions whether large cap stocks are indeed safer than bonds.  Salmon compares the experience of investing in Johnson & Johnson versus the 10-year Treasury Bond.   Over the past 20 years J&J was the clear winner, but the outperformance only occurred in the first 10 years. 

Salmon points out the benefits of the large multi-nationals which include strong balance sheets,  currency diversification and abilities to hedge inflation.  But in the end Salmon is not convinced any portfolio of stocks is safer than government bonds.

This doesn’t mean large cap stocks shouldn’t represent a sizeable portion of ones investment portfolio.  It would appear they offer tremendous benefits unless the worldwide economy falls off a cliff.

3 Comments

  1. Berry McCaulkiner

    July 7, 2011 at 10:31 am

    The only place to find interest is the large caps.

  2. Cole Ostamie

    July 7, 2011 at 4:42 pm

    JNJ handily outperformed the 10 year note during the last decade as well.

  3. Don Keedix

    July 7, 2011 at 8:56 pm

    I’ll stick with JNJ and a few utilities. Maybe fund a lemonade stand before I buy treasuries.

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