What I've Learned in the Last Ten Years
It has been about ten years now since I got my first job in the financial services industry. Each and every year since that time, I have seen a constant stream of negative news and predictions about our economy. Fear is a very normal emotion that we all must cope with as investors, but it can only hurt us if we make it part of an investment strategy. For some reason, it seems the fear was so intense in 2019 that a great number of people made it a part of their investment strategy. Stock market related mutual funds and exchange traded funds had net outflows of $92.3 billion while money market mutual funds held by individuals had net inflows of $198.5 billion and bond funds had net inflows of $480.9 billion . This implies that a great number of people bailed out of the stock market and moved into bonds and cash.
Despite the negative sentiment throughout the entirety of 2019, the global markets had their best year since 2009 . Unfortunately, much of the investing public did not share in its success.
What could those people have done to sidestep that type of market-timing mistake? One would need to take a step back and look at the bigger picture to answer that question:
In 1970, there were approximately 3.7 billion people on this planet  — nearly 50% of whom lived below the international poverty line . The S&P 500 ended at 83  and US 1st quarter corporate profits were $55.3 billion . By 2015, there were 7.37 billion people on earth  and less than 10% lived in extreme poverty . The S&P 500 ended at 2,061  and US 1st quarter corporate profits were at $1.777 trillion . In recap: Despite the fact that our population nearly doubled, the number of people living in extreme poverty went down by a billion people, the stock market increased by a multiple of nearly 25 times (not even including dividends) and Q1 profits were up by a multiple of over 32.
The economy is getting much bigger as more people that were once very poor are becoming part of our global economic system. Increasing corporate profits and therefore increasing stock prices are things that naturally follow an expanding economy. As we follow this trend into the future, is it possible for every nation to share our standard of living? With an economic engine powerful enough to support that type of reality, to what level might that take the stock market?
I wouldn’t blame you if you thought these questions were far fetched. However, if we follow this trend back about 200 years, nearly everybody lived below the international poverty line. Now 90% are above that poverty line ! The reality we live today, no doubt would seem far fetched to somebody that lived 200 years ago.
Our global system, driven by entrepreneurship, creativity, and ingenuity, has created wealth and increased our standard of living at a rate nobody has been able to accurately predict (at least that I’m aware of). We tend to take many of today’s amenities for granted — each one invented as a solution to a problem. Think of how much time it saves to use a washer and dryer. Many of the diseases that used to plague our society are unknown to today’s children. There is more computing power in today’s smartphone than all of NASA had at its disposal when they sent people to the moon for the first time. What was your life like before 1991 when the internet became public? Vertical farming techniques could solve land shortage and logistics issues. The list goes on. What solutions and technologies will the next ten years bring? Twenty years?
Contrary to reality, the daily news would have you believe that the world is actually getting worse by focusing only on our current issues and what may happen should we “let the plane crash into the side of the mountain”. We do still have many problems and will face some serious challenges ahead to which I expect we will somehow find solutions, likely at the darkest hour. I will count on the news to report only on our current problems and worst-case scenarios — not the underlying positive trend described above or what impact it may have on the future income potential for companies, which is our chief concern as investors.
It is this long-term positive trend and its underlying causes that we want to continually focus on and use as the foundation for an investment strategy. We cannot count on the daily news to remind us of this trend and therefore cannot allow headlines to drive our investment decisions. Otherwise, we risk missing out on a banner year such as 2019 where we saw almost exclusively negative news.