Dave Gruber: How should investors be thinking about positioning their portfolio? How do you see equities fitting in right now?
Charlie Dreifus: With the backdrop that we're facing, and the notion that the market's not inexpensive, I think it's prudent to take sort of conservative options and compare it to your alternatives.
I think in terms of what is a likely return from equities in general, forgetting about stock picking. Hopefully I and others bring skill sets that we can produce greater than what the market's going to produce, but the market could produce an 8% total return this year. And I get that by saying, well, earnings, I think, even with these cross currents, will probably increase about 6%, which is the 100+ year average of the U.S. economy. Some years were a lot higher. Some years were a lot lower. I don't think we're going to be that far from that metric this year. If you add to that 2% either cash or stock buyback yield, you get a total return of 8%.
The 10-year U.S. Treasury is roughly 1.9%; the 30-year is 2.5%. Then you have to sort of ask yourself, if you populate your portfolio with really high-quality, pristine companies, where there's no issue about sustainability and financial risk and ability to pay dividends, let alone increase dividends, I certainly would want to own a basket of securities.
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