A view on the economy...
The Long View
February 12, 2008
You may have seen that the second-richest person in the world - Warren Buffet - was recently quoted in the media, saying that he's bullish on the North American economies and that it isn't smart to sell either the U.S. or Canada short.
Meanwhile, your gut is saying that it is pretty sure things are bad out there, and this is one of those times when investors should obviously run for cover. So who do you listen to - the second-richest man in the world, or your intestines?
Now, before you answer, it's instructive to remember that Warren Buffet didn't become stupendously rich because he invented something, or because his daddy left him an oil company.
Warren Buffet is wealthy beyond all understanding because he's been a very smart investor for a very long time. And if WB says something about investing that seems contrary to your own thinking, well, certainly you're entitled to your opinion. But you may want to hold that thought a moment while you consider why the poster boy of value investors isn't all panicky and twitchy about the recent performance of the stock markets.
One of the important perspectives a venerable investor like WB has is one of history. He's been there, successfully investing for more than half a century worth of human drama. And that kind of experience brings a long view that investors should - must - take if they want to be successful.
Consider, for example, the last several decades, and the returns from stocks in Canada:
The 1950's featured the Korean War, the beginning of the Cold War, and two U.S. recessions. Canadian stocks averaged a compound annual growth rate of 13.2 percent over the decade.
The 1960's brought the assassinations of sitting U.S. president John F. Kennedy, civil rights leader Martin Luther King, and presidential candidate and Senator Robert Kennedy. There were race riots, the Vietnam War, unrest and war in the Middle East, and another two U.S. recessions. The Canadian stock market generated a 10 percent annualized return over the decade.
The 1970's were brutal. The Vietnam War killed the American economy. There was double-digit inflation, and stagflation. The Oil Crisis. Martial law was declared in Canada during the tragic and frightening FLQ Crisis. Terrorism struck again on Black September at the 1972 Olympics. The 444 days of the Iran Hostage Crisis began. Oh, and Canadian stocks averaged an annual return of 10.4 percent through the decade.
The 1980's were characterised by political unrest in Quebec, spurring a referendum. There was massive inflation, global recession, and high unemployment in the U.S. and Canada. Interest rates were sky high. Your mortgage rate exceeded 20 percent. Mount St. Helen's blew up. There was a massive earthquake in San Francisco. And, um, Canadian stocks averaged 12.2 percent a year over the decade.
The 1990's had the first Iraq War, the U.S. Savings & Loan meltdown, the junk bond collapse, a U.S. credit crunch, the Japanese recession, an Asian financial crisis, crippling strikes throughout Europe, the break-up of the Soviet Union and subsequent economic depression, and fear of the impending doom of Y2K. As for the Canadian stock market, well, it climbed by an average of 10.6 percent per year that decade.
And so far, the 2000's have been just what you'd expect, if you were a student of history. Tumult. Upheaval. War. Stupidity. Greed. Bad judgement. Britney Spears. Oh, the humanity. And yet, we fumble through. We push on. We aspire. We stay open for business. And we grow.
How will returns look at the end of this decade? That's anyone's guess - and there are a lot of guessers. Since the answer lies out there in an unknowable future, we'll just have to wait and see.
But if you're tempted to listen to the many opinions offered by the media, the pundits, and yes, your own gut, you may want to remember the considered thoughts of the world's second-richest man, and it's very wealthiest investor: in the long run, it's just not smart to sell us short.
© 2008 John Caspar