Wisdom of crowds: What can we learn from 8,000 people in 1974?

One of my favorite photos captures a line of over 8,000 people standing outside the Federal Reserve Bank of New York in August 1974 waiting to buy U.S. Treasury securities. With interest rates of 8.5% to 9.0%, investors craved these “high income” investments.


Source: Federal Reserve Bank of New York

The photo seems surreal today. For one thing, no one lines up to buy securities anymore. We’re in a digital world where you can invest at home in your pajamas on a tablet. And 8% to 9% yields for perceived “risk-free” U.S. government securities? Well, that’s as distant as the 45-cent price tag for a dozen eggs in 1974. Today’s Treasury yields at comparable maturities are between roughly 2.5% to 3.0%.

But the strategy of finding and holding higher income-generating investments for the long term has held up well. I’d argue it’s more relevant than ever. If you subscribe to a view that the expected returns for equity markets will be lower over the next five to ten years than the last five to ten years, then finding investments that have more yield potential than expected returns may help grow portfolio values.