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The goal of this article is an estimate of the objective forward-looking U.S. equity risk premium relative to bonds through history--specifically, since 1802. For correct evaluation, such a complex topic requires several careful steps: To gauge the risk premium for stocks relative to bonds, we need an expected real stock return and an expected real bond return. To gauge the expected real bond return, we need both bond yields and an estimate of expected inflation through history. To gauge the expected real stock return, we need both stock dividend yields and an estimate of expected real dividend growth. Accordingly, we go through each of these steps. We demonstrate that the long-term forward-looking risk premium is nowhere near the level of the past; today, it may well be near zero, perhaps even negative.

Israeli psychologists Daniel Kahneman and Amos Tversky have conducted the most influential research on risk/uncertainty management. Their concept, called the Prospect Theory, has been able to highlight behavior patterns that had never been recognized by proponents of rational decision-making. They believe that people can exhibit either risk-aversion or risk-seeking behavior when offered the same choice but in different settings. The Prospect Theory has also shown the existence of asymmetry in decision-making involving gains and losses.

The article focuses on managing corporate pension funds. There is more interest in pension plan liabilities since the Financial Accounting Standards Board (FASB) recognized that defined-benefit plans refer to the employer's responsibility to provide a promised pension--regardless of the size of the pension trust assets. Some companies are expected to shift their definition of pension fund risk because of FASB 87. Topics include the advantage of long-term bonds, hedging pension-fund risk, and a downstream surplus in pension funds.

Several letters to the editor in response to articles in previous issues including "The Mysterious Disappearance of Retained Earnings," by Ben C. Ball Jr. in the July-August 1987 issue, "Muscle-Build the Organization," by Andrall E. Pearson in the July-August 1987 issue, and "From Competitive Advantage to Corporate Strategy," by Michael E. Porter in the May-June 1987 issue are presented.

In this article, the author looks to history for other times in which the stockmarket was wrong because of the failure to recognize that consensus hopes or fears are fully embodied in current valuation levels. The author plans to show that, in these times, the market was misvalued in the face of simple and readily available analytic techniques that would have shown how stock prices had already discounted consensus expectations, and that the inability to face facts was the consequence of a systematic feature of market behavior that again dominates the investment environment.

We are in an industry that loves to forecast the future by extrapolating from the past. As a consequence, investors have grown accustomed to the notion that stocks ``normally'' produce [...]

As a result of dealing with clients, you know there's more to risk and risk tolerance than academic models might suggest. Peter L. Bernstein knows that, too. The head of [...]

This article presents information on economic conditions in the U.S. The cost of living rose 4.6 per cent in 1968 and then, despite the tax surcharge and ever tighter monetary policy, it rose more than 5 per cent in 1969. And there are no meaningful signs of a letup in the inflationary spiral. In recent weeks, prices of steel, copper, aluminum and a variety of chemicals have been increased, to say nothing of transit fares, commuter fares and state and local property and excise taxes. In 1965 wages had started going up by 5 to 6 per cent a year, but now the prevailing rate is closer to 10 per cent.

Examining the caprices of an irrational market and the faded growth stocks of yesteryear, the author concludes that "a melding of past financial performance with today's glamour is a very unreliable guide to the future." The only way to reach the Holy Grail of the marketplace, a sustained high price/earnings multiple, is through sustained high earnings and return on book value. He sees a cloud on the horizon, however, questioning whether the growth rates of the biggest blue-chip growth companies can be maintained indefinitely. If not, they will suffer a swift reckoning in the fickle investment community. But until then, growth remains "the only game in town." [ABSTRACT FROM AUTHOR]

The article discusses the effects of the baby boom generation entering the workforce. The article encourages executives to ponder all the ramifications of the growing workforce, not only the potentially huge increase in labor force but the potential that an overpopulation of workers could disturb economic expansion in the United States. The article notes that the free-spending joie de vivre of the post-war years was a specific historical event that is unlikely to be repeated in the next generation and that the U. S. should be prepared for a change in its economy.

This article investigates the association between population structure, money supply, and their implications for long-range planning in business enterprises. This article also discusses birth rate and demand, trends in population in pre- and post-World War II, the increase in debt, the liquidity necessary to finance a higher wage-price structure, and predictions made in the ability of the United States economy to make the necessary adjustments to changes in basic forces. The article explains that the economy is always changing and that no change is infinite.