Forty years ago Business Week published one of the most infamous features ever written about the stock market: “The Death of Equities.”
The magazine’s cover featured a photograph of a crumpled stock certificate, looking like a dirty old shirt ready for the trashcan. It was shocking, to say the least, and probably put fear in the hearts and minds of almost every investor of the time.
“For better or for worse,” the article intoned, “the US economy probably has to regard the death of equities as near-permanent condition—reversible someday, but not soon.”
Unlike today, in 1979, stocks did not dominate the investment landscape. Equities were viewed as just one of many equally acceptable investment vehicles by economists and financial professionals. In short, folks believed that stocks would play second fiddle to investments in gold, real estate, commodities and futures, and options.
The article goes on to say, “At least 7 million shareholders have defected from the stock market since 1970, leaving equities more than ever the province of giant institutional investors. And now the institutions have been given the go-ahead to shift more of their money from stocks—and bonds—into other investments.”
Talk about fear-inducing rhetoric!
But, in fairness Business Week, it had been a rough ten years at that point. As the article’s data pointed out, stocks had only compounded at a 3.1% rate, while inflation had hit a 6.5% run rate. Gold was at 19.4%, and real estate was at 9.6%.
So, the market had been stagnant for about a decade. But, if you listened to that advice, you missed quite a run. If you stayed invested in the S&P 500 for the past 40 years – from July of 1979 through July of 2019 – then a $10,000 investment compounded (with dividends reinvested) would come in at about 11.68%. That translates into a total return of over 8200%! So, what would your initial investment have grown to? An astonishing $830,000.
Here are some valuable lessons to take away from this yellowed old piece of Business Week fear-mongering:
1. Equities not only survived. They’ve thrived.
The 8000% return in the S&P 500 over the next four decades is solid proof of this point. And, the dividend payout went from about $6 to $56 during the same period. Plus, equities grew at over 11.5%, inflation grew at 3.5%. I like that math!
2. A massive growth also happened for the US’s GDP. We often talk about the economic freight train that is the US economy. And it’s a real and proven concept. The US real GDP went from less than $7 trillion in 1979 to nearly $20 trillion in 2019.
3. Remember, extremes don’t last forever. We have over 100 years to look back carefully at the US stock market, the economy, and the state of business in America. Extremes may revert us to the mean and meager decades, but then they lead us back to prosperous decades. And, while below optimal decades can lead to lower average annual gains, they don’t harken the death of equities.
Keep it in mind that pessimism is poison. Think of all that’s happened here at home and across the globe in 2019: the trade war with China, the issues with the Federal Reserve, Brexit, nuclear war threats from North Korea. There are bad actors out there. But, if we let pure fear drive our decision making, we could end up holing up in our basements with our money in a safe. And we all know that’s not a viable investment strategy.
And I’ll leave you with my absolute most important point: US companies have too many feet inching forward every day. There is power, momentum, and resilience in American businesses. So, keep that critical point front of mind and leave the pessimism behind you.