Most Major Investments Outpace Inflation, Post Positive Results in ’93


If every year were like the one just past, savers and investors wouldn’t have much to complain about.

In the final tally for 1993 by Morgan Stanley & Co., all major categories of investments posted positive results, and most of them handily outpaced the reported rate of inflation.

Whether you took an aggressive or a conservative approach, your chances were pretty good of coming out ahead.

As Barton Biggs, investment strategist at Morgan Stanley, points out, things don’t always work out quite so nicely.


“We fortunate financial-asset investors have been terribly spoiled, and genius has been confused with bull markets,” he observes.

Of course, prosperity is relative. Owners of money-market investments like Treasury bills and commercial paper had to settle last year for returns far below what they had been used to over the past decade or so.

Tangible assets produced very uneven results. While depressed gold and silver markets rallied sharply, real estate barely eked out a gain.

The standout winner in Biggs’ annual tabulation of investment returns was emerging market equities--the fledgling stock markets of numerous nations where industrial and financial bases are just being built. Their gain of 67% was almost double that of their nearest rival.


Silver, in second place, jumped 39.1%, while gold gained 17.8%. But faithful followers of the precious metals markets still have a lot of catching up to do. Both silver and gold still show negative average returns over the past five years.

In the domestic financial markets, emerging growth stocks racked up a 22% return, more than doubling the 10% advance recorded by Standard & Poor’s composite index of 500 stocks, which is dominated by larger issues.

Junk bonds, benefiting from an easing of the early-1990s credit crunch, chalked up an 18.9% advance.

With their recent resurgence, junk bonds now boast annualized returns of better than 13% for the last five and 10 years, even with the severe shakeout their market endured at the end of the 1980s.


If you opted for higher quality in bonds, you still came out with pretty fancy results. U.S. Treasury bonds gained 17.2% and investment-grade corporate bonds 12.2%.

Shortening maturities, however, meant giving up a lot, thanks to the decline of interest rates to their lowest levels in a generation. Intermediate-term government bonds returned 8.2%.

In the short-term money markets, commercial paper brought a 3.3% return and Treasury bills 3.1%.

Although those numbers were way down from the double-digit peaks of the early ‘80s, they still beat reported inflation, which at 2.9% also came in below the average levels of the past couple of decades.


By Biggs’ reckoning, inflation from 1945 to 1993 averaged 4.4% a year.

Without much inflation to stir up interest in them, the real estate and collectibles markets were generally subdued. Art, for example, returned 9.5% under Biggs’ yardsticks.

In real estate, U.S. farmland returned 6%, residential housing 3%, and commercial real estate, the laggard among all categories, an estimated 2.1%.

“For more than a decade,” says Biggs in summary, “we have been luxuriating in real annual returns of 10% to 12% in big U.S. stocks, Treasury bonds, corporate bonds, foreign bonds and junk bonds.”


Delightful as this has been, Biggs says there is cause to doubt it can continue at quite the same pace. After all, he says, it’s dangerous to keep hoping that every year will be above-average.

Or in mathematical terms, as he puts it, “regression to the mean is still the most powerful force in the investment world. Think contrary.”