“In the long run, all companies go bankrupt.”

This article is getting a lot of attention – Tight Spot for Fed, Blind Spot for Investors:

Indeed, most people who invest in the stock market get poorer. Look at Japan, Korea and Taiwan: Even though their per capita incomes have risen enormously over the past three decades, investors in these stock markets lost money. Economic growth is a necessary but not sufficient condition for investors to make money in the stock market. Most countries, unfortunately, don’t possess the conditions for stock markets to reflect economic growth. The key is good corporate governance. It requires rule of law and good morality. Neither is apparent in most markets.

It’s a widely accepted notion that long term stock investors make money. Actually, this is not true. Most companies don’t last for more than 20 years. How can long term investment make money for you? The bankruptcy of General Motors should remind people that this notion is ridiculous. General Motors was a symbol of the U.S. economy, a century-old company that succumbed to bankruptcy. In the long run, all companies go bankrupt.

A few months ago I was having a conversation with a guy at the bank. He was trying to convince me to buy some stock-based investments. I told him I had given up on the stock market – too rigged.

He gave me the standard line – stocks outperform other investments over the long run and you’re safe as long as you invest in solid companies. When I shot a stare at him he backtracked, “Well, maybe not AIG.”

“Or GM,” I said. The Dow Jones Industrial Average recently removed GM and Citigroup from its basket of 30 “blue chip” American stocks. and AIG should probably be removed as well.

The conventional wisdom about stocks that’s been built up by financial planners over the last few decades is going out the window. People are looking at the data and finding that boring investments like bonds and Treasuries frequently outperform stocks. More importantly, they carry much less risk.