If professional financial advice was sought on Monday, May 1, 1967 – a day on which the S&P 500 closed at 94 and 9.4 million shares of stock traded on the New York Stock Exchange (NYSE) – comparable statistics for May 1, 2013 – the S&P 500 closed at 1,583 on the NYSE with a volume of 3.5 billion shares. Those numbers alone suggest a very important thing about today’s investment market.
Before sharing some really important things learned in those 46 years, one must remember that these observations are views developed by investors and nothing that follows proves anything about the future. Proof of the future is beyond man’s competence. For example: I cannot prove that the sun will come up tomorrow, much less if you or myself will be here to see it, if it does come up. Although information and data indicates that there is a very high probably that it will come up again tomorrow. With that said:
1. The single most astonishing thing over this period has been the sheer magnitude and volume of economic progress. The U.S. Gross Domestic Product since 1943 has increased about six-fold. That means the value of manufactured goods and services produced – after subtracting for inflation – is six times what it was in 1943. The S&P 500 has risen close to 17 times more – dividends have grown even more – and the return of the S&P 500 with dividends compounded, has been about 9.6% over the last 46 years. Yet during this time, we have had wars, recessions, savage bear markets, natural disasters, assassinations, a presidential impeachment, financial crises, geopolitical turmoil, oil embargos and catastrophic terrorism – one seemingly intractable crisis after another. However, stock prices are higher than they have ever been and so are the dividends. First thing learned here – invest.
2. The world does not seem to end with each of these man-made disasters, although it gives that indication from time to time. A legendary investor by the name of John Templeton coined the phrase, “It’s different this time.” When we are going through a crisis that seems to have no historical context – the 9-11 terrorist attacks for example or the global financial collapse of 2008 – it is human to fear that the end is near. However, as always, good companies have reacted rationally to the challenges which seem to be without precedent, taking steps to ride out the storm and lead the way back; developing new products and entering new markets. There always seem to be tried and true ways good companies prosper during these stormy periods. We need to invest in the resilience of good companies – the second thing learned here.
3. Sometimes it seems that progress is slowing down, when in fact it keeps speeding up. For instance: the computer imbedded in someone’s iPhone 5 is a “million times smaller”, a million time cheaper and is a thousand times more powerful than the old gigantic IBM mainframes back in the mid 1960’s. That is a “billion fold” increase in computing power per dollar in the last 46 years; however, how many investors got in on the “ground floor” investing in that new technology? Today, the markets are entering an era of ‘cloud computing,’ 3D printing, and molecular engineering. As Al Jolson once said, “You ain’t seen nothing yet.” Third thing learned is not to close your eyes to solid progressive investment opportunities.
4. Forty-five (45) years ago, the economic life on our planet was basically in North America, Europe and Japan. The rest of the world was relatively inconsequential economically. Russia and China were militarized dungeons, and India was the epitome of socialism; however, today some of these along with Brazil, South Korea, Indonesia and Mexico are the growth engines of the world. For example, in 2004 General Motors sold ten (10) cars in the U.S. for every car it sold in China – today that projected ratio is one to one. American investors do not seem able to look past their own fiscal woes to see where the significant growth and investment opportunities lie. Fourth thing learned here is not to over-look additional investment opportunities because we have never done it that way before.
5. In World War II, the Allies burned seven (7) billion barrels of oil; of which six (6) billion came from production in the United States. By the late 1950’s, we began to lose our energy independence and by the 1970’s – OPEC was able to hold us hostage, inflating the price of oil at will. With new procedural revolutions of horizontal drilling and hydraulic fracturing, America is projected to potentially become the world’s largest oil producing nation by 2020. It has been discovered that we are sitting on hundred years’ supply of shale gas and U.S. natural gas can cost a third to half what it does in Europe and Asia. Some manufacturing jobs that shipped overseas a couple of decades ago because of cheap labor are already returning home. Fifth thing learned, be skeptical of the concept of peak oil prices and supportive of our country’s energy future; take investment opportunities in areas that we have never done before.
6. Finally, investment advice in one sentence: “pessimists have always figured out a way to be really wrong – optimists have kept figuring out ways to be right”. Sixth thing learned, have a strategic plan that includes investments; do not keep doing the same things that do not achieve your goals.
We must identify and remove items from our Digest of Laws that are restrictive to earning potentials of our investments in today’s economic markets. You are asked to become knowledgeable of the needs and the reasons to make changes to improve the Fraternity’s investment opportunities thus increasing earnings.
Fraternally,
Ken Dyer, Grand Master
