willing to provide capital to those who wish to innovate. Equally impor-
tant is that many U.S. brand names have great appeal worldwide so the
growth of consumer markets abroad holds high promise for many U.S.
firms.
For these capital movements to occur, we must be viewed as recep-
tive to international capital. Although there has already been a large
number of cross-country mergers, there has also been increasing opposi-
tion, such as the Congressional rebuff of the Chinese National Offshore
Oil Company’s (CNOOC) bid for Unocal and the Dubai Ports fiasco. Fur-
thermore, some indicate that London is already replacing New York as
the world’s financial capital. The United States cannot rest; resisting these
globalizing trends will lower our future returns and living standards.
CONCLUSION
In this chapter we have shown that faster economic growth in no way
guarantees higher returns. In fact, based on the historical data, slow-
growing countries, because of their more reasonable valuations, have
tended to have higher returns than fast-growing countries.
Higher stock returns follow periods of low price-to-earnings ratios,
and lower stock returns follow high price-to-earnings ratios. Although
the historical average price-to-earnings ratio is about 15, there are per-
suasive reasons why future valuation measures may be higher. Lower
transactions costs, lower taxes, and increased economic stability argue
for higher ratios in the future, although this will ultimately mean lower
future stock returns if share prices reach these higher levels. Although
these returns may be diminished from the past, there is overwhelming
reason to believe stocks will remain the best investment for all those
seeking steady long-term gains.
In the far future, the aging of the population is a critical issue im-
pacting financial market returns. We cannot escape from our demo-
graphic realities. But we can take actions that will lead to a much
brighter outcome. The integration of the world’s economies and capital
markets is the key to our future well-being. If we shun this path, our fu-
ture will in no way be as bright as our past.
138 PART 2 Valuation, Style Investing, and Global Markets