I recently watched the movie “Radio,” a heart-warming story about a high school coach who nurtures a mentally challenged young man, who becomes loved by the student body as he teaches the entire town about compassion and friendship. My favorite scene in the movie is when the coach shares a poignant story about a meaningful experience delivering newspapers when he was a young boy.

I think every kid should have a paper route… In my early teens, I delivered papers at the crack of dawn, six days a week, in a small town in Upstate New York. I encountered unfriendly dogs, grumpy customers, and frigid temperatures made worse by cold north winds. And it was worse in the winter… But I learned responsibility, the importance of being prepared, and how to adapt to challenges. It was after all my paper route.

Today, I spend most of my waking hours reading, including several newspapers. Each morning I wade into volumes of economic updates, investment research, political commentary, and headline news stories. Often I’ll jump around between these four categories in search of something uplifting. No small task, lately. Recent musings have been either downright discouraging or laced with a frustrating degree of cynicism. A result, I fear, of the times we live in.

But fear not, for I have good news… For starters, the dividend yield on the S&P 500 is greater than the yield on the 10-year US Treasury bond. This is the first such occurrence since 1962, and it means that stocks are significantly undervalued relative to bonds. That is good news, at least for investors who own stocks.

I realize that the recent past has been anything but positive for stocks. In fact, over the past ten years, the annual return on stocks has been a paltry 1.4%, while the annual return on long-term government bonds has been 6.6%. Not surprisingly, over the past three years nearly 90% of mutual fund inflows have gone into bonds. For the sake of argument, fast forward ten years into the future. Wanna bet which asset class out performs? If history is any guide, stocks will outpace bonds over the next ten years, by a wide margin. Over the last 80 years there have been eleven 10-year periods when the annualized return on stocks was below 5%. In the 10 years following those difficult periods the average 10-year return was 13.2%. The average 20-year return was 14.8%. My guess is most investors would be content with returns close to 15% for the next 20 years. Now don’t get carried away. I do not expect the stock market to provide 13-15% returns over the next two decades. But some reversion to the mean is likely, which suggests stock market returns going forward should be significantly better than the recent past, despite the uncertainty and negativity that greets us every morning like a cold north wind.

But there is more good news… In addition to the high likelihood that stocks dramatically outpace bonds over the next ten years, it is possible to build a portfolio of stocks that will do even better. Moreover, there is a common thread to this portfolio of high performing stocks. Let me explain this with a recent example. Home Depot reported a quarter where they significantly outperformed their main competitor, Lowe's. Home Depot’s same store sales advanced over 4% while Lowe’s experienced a slight drop in this key metric. The commentary coming from these two competitors reveals an important distinction. Management from Home Depot highlighted internal strategies that have been successful driving market share gains and better than expected earnings. In contrast, Lowe's management blamed the economy, the weather, Standard & Poor’s, and the drop in stock prices for its below expectations quarter. At the risk of over generalizing, it appears to me that Home Depot has taken ownership of its performance, while Lowe’s is searching for excuses.

And searching for excuses seems to be popular today… The blame game is not isolated to the political arena. It exists in the corporate sector as well. For example, Evergreen Solar, once one of the leaders in solar technology, recently filed for Chapter 11 bankruptcy. The company blamed its ultimate demise on insufficient subsidies, although it received millions from the state of Massachusetts as well as the federal government.

Another unsettling example of blaming others involves the looting and mob violence in London. Washington Post writer, Courtland Milloy, articulated this disturbing attitude in a column titled “From London to Philadelphia, youths erupting over the theft of their futures.” Granted the world does not offer a level playing field, but the opportunity to improve one’s position still exists for those who are willing to outwork the competition. Unfortunately, there seems to be an attitude today that “If I can’t have it, neither can you, whether you earned it or not.” Sadly, this attitude does not seem to be confined to misguided youths in London.

Leading companies will own their future… In an uncertain, volatile environment, it is far better to be proactive rather than reactive. It is better to be the low cost producer and to be on the leading edge of innovation in terms of products, services, and marketing strategies. Leading companies also have a clear vision that is embraced throughout the organization and have a track record of delivering on this vision on a consistent basis.

Successful companies will not rely on a booming economy, temperate weather, or government subsidies to drive long-term earnings growth. They will, essentially, own their paper route.

Michael Kayes, CFA