By Dan Ferris, in the S&A Digest:

[Yesterday] morning, SocGen global-equity analyst James Montier quoted the following from a recent report by Bridgewater Associates titled, "The Performance of Individual Stocks During the Great Depression."

The best 20 performing large companies sailed through the depression relatively unscathed. Their earnings were roughly flat from the peak in 1929 until the bottom in 1933. On the other hand, the earnings of the worst 20 performing large companies fell so much that the losses were nearly as big as the prior profits. Despite this radical difference in earnings performance, the prices of the best 20 and worst 20 earning companies fell by similar amounts, -80% for the best and -96% for the worst.

In other words, it did absolutely zero good to know which were the 20 best-performing businesses among publicly traded companies. Either way, you lost most of the money you put into stocks. If this is the Greater Depression, as Doug Casey calls it, stocks are not the ticket.

Aside from the Great Depression scenario, Montier wrote about two other possibilities - one based on the experience of Japan from 1990 to the present, during which time value investing beat the market by 7% per year. The overall Japanese equity market from 1990 returned about -4% a year. But if you bought the cheapest Japanese stocks by price to book value and held them, you made 3% per year. If you also shorted the most expensive stocks, you made 12% per year.

Sounds like a plan: Buy quality value and short overpriced crap.

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