“Second only to Love, Human Ingenuity is the most powerful force on earth.”
-Nick Murray
Last month, we celebrated the 50th anniversary of October 1973, possibly the worst month in the history of America. This month, we are reminded that we should never underestimate the power of human ingenuity.
Save the Date for January 24
We have been publishing our “Great Investors” article series for over 10 years, and this series has consistently been our most popular content every year. We thank our loyal readers and truly appreciate your comments and feedback over the years.
One suggestion we have received several times is that many of our readers feel it would be more beneficial to have an interactive conversation about our investing philosophy and outlook on current events in relation to that philosophy. Many have suggested that it would be valuable to have an opportunity to ask questions about our topics in addition to just reading our article.
So, we have changed the format for our “Great Investors” series from a monthly written commentary to a quarterly webinar format. We will deliver a brief talk summarizing our outlook on current events in the same style you have come to appreciate in our monthly article series. We will then have ample time for Q&A and discussion in order to address any additional questions you may have.
Our next webinar will be held on Wednesday, January 24th, and will be available via online live stream and in person for those who can attend. Please save the date, and more details will be available soon!
How Did That Happen?
As we hinted in our article last month, the early 1970s were arguably the worst time in the history of the United States and, in many ways, made even our current challenges look quite minor by comparison. Consider the events of 1970:
The first five months of 1970 witnessed the final stages of a major decline of the stock market, which had fallen by 36% over the prior 18 months.
By early 1970, President Johnson had announced a massive troop withdrawal from Vietnam, fueling hopes that the war was finally ending. But then, on April 30th, he announced to a stunned nation that the US had invaded Cambodia without Congressional knowledge or approval. The nation’s college campuses erupted in protest, and four student demonstrators were shot and killed by the National Guard at Kent State University.
Environmental pessimism was running rampant, and the popular point of view was that runaway population growth was soon going to cause our natural resources to run out. The bestselling book “The Population Bomb” predicted that hundreds of millions of people would starve to death over the coming decade.
And probably worst of all, because President Johnson had attempted to pay for both the Vietnam War and the War on Poverty with the same dollars, inflation was running out of control. It was becoming clear that the US would have to eliminate the “gold standard” for the dollar, which had been the foundation of the global monetary system for decades. At the time, this was the financial equivalent of the law of gravity being repealed, and there was great concern for the instability that it would cause.
Then, in 1973, things got really terrible, as we outlined in our article last month. A massive proxy war broke out between the U.S. and Russia, staged in the Middle East. The Watergate scandal rocked Washington, as the Vice President resigned, and a major constitutional crisis erupted. Then — as the economy, stunned by the oil shock, fell into a 16-month-long recession — the stock market began declining in earnest. It would not bottom out for another year until, on October 4th, 1974, the S&P 500 reached its low of 62. That was down 48% from peak to trough — by far the steepest decline since the end of WWII.
If there was ever a time to be bearish on the future of the stock market, 1970 was it. Even the most wild-eyed, unrealistic optimist couldn’t have possibly predicted what would happen in the financial markets over the ensuing 53 years.
Investing in Ingenuity
This incredible explosion in wealth in the equity market over the last half-century seems almost impossible until we consider another important set of facts.
Tomorrow morning, when you drive by the bus stop on your way to work, consider the fact that every one of the middle school kids you see boarding the bus has a device in their backpack that contains more computing power than existed on the entire planet back in 1970. The iPhone that almost every American carries in their pocket today is more powerful than the mainframe computers that sent the first astronauts to the moon. Most of the capabilities on your phone today not only didn’t exist in 1970, but they were as inconceivable as the latest sci-fi movie.
The second and related fact is that nine out of the 10 most valuable companies that are part of the S&P 500 today, representing almost $13 trillion in market value, did not even exist in 1970.
To be a successful equity investor, it is essential to understand that you are not investing in the world as it looks today. You are investing in human ingenuity and the way that it will shape how the world looks in the future. Equities are the only reliable way of investing in human ingenuity, which has proven time and time again to be the most powerful force on earth.
Helping Those You Care About
Over the last year and a half, the faith of all long-term investors has been severely tested. As must happen every few years, we were basically required to do just one big thing: reject the idea that “this time it’s different” and hew to the belief that “this too shall pass.” We must not doubt that we’ll get many additional opportunities to practice patience and discipline in the years to come.
Successful investing, while always fundamentally simple, will never be easy. You may have a family member, colleague, or friend who perhaps did not fare as well during the 2022-23 bear market and who you feel might have benefited from the sort of advice you were receiving. Should that be the case, we would certainly appreciate your introducing us to them. We very much enjoy working with you and would welcome the opportunity to offer the same level of planning and service to people whom you care about.
You are more than welcome to bring a friend or family member to our event on January 24th or to share the recording of our discussion that night.