We heard the same basic lament at the FPA (Financial Planning Association) NorCal Conference we attended recently that we have been hearing from some clients for a few months now. Investors everywhere, it might seem are suffering from what might be called a loss of hope. We are grateful to Bob Veres, a financial writer we read and respect, for his thoughts in framing this message.
A growing number of investors seem to believe that the world is coming apart, and therefore have no enthusiasm in investing in anything that depends on an optimistic view of the future.
The specifics vary. It may be despair that the Democrats or Republicans are ruining the country, or that the political system is so badly broken that our country will careen into some future catastrophe. The debt burden is so large that we cannot possibly dig out, and therefore we all face a dark future. Other countries are overtaking the U.S. for global economic supremacy. Most often, it seems to be linked to the scaremongering we see in the media, either for political purposes or because scaring people out of their wits has recently become a surprisingly attractive viable business model. Depressing people with unrelentingly gloomy prognoses of the future draws attention and is an important tactic for those whose living depends on getting our attention.
All of this brings back vividly our earliest days in the financial planning profession, when an individual named Howard Ruff published a newsletter called “Ruff Times.” Howard Ruff believed that the world was going to h*ll, the economy was about to come apart, the markets were on the verge of collapse, and everybody should stock up on gold coins, canned food, water and plenty of ammo. He preached that his followers, who numbered in the tens of thousands, should avoid stocks altogether, and those who followed his advice missed the entire bull market of the 1980s and 1990s, when it was throwing off the most generous investment returns in world history.
We imagine Howard Ruff would admire the doomsayers of our more modern era, for their ability to muster remarkable statistics and carefully select their facts and arguments. Recently, we looked at the Harry Dent materials, curious to see what the man who thought the bull market would rage on even after the collapse in 2001 had to say today, and of course now he’s a raging bear. His predictions robbed people of perspective as they went over the top of the bursting bubble; will he now confuse them on the way back up? By giving a one-sided, misleading vision of the future, Dent and Ruff and the others will pocket more than those giving more nuanced, honest and less self-serving advice.
By no means are we “permanent optimists”. There have been times when reason suggested more caution. At the height of the dot.com bubble, it was hard to convince clients that tech stocks can be too pricey. As it turned out, the Internet was a pretty competitive environment. Similarly, real estate soared on the backs of low interest rates and the belief that the value of homes couldn’t go down. Before its recent IPO, we warned that shares of Facebook were very highly priced given the company’s earnings.
Against the backdrop of well-paid pessimists, it may be hard to notice the bigger picture. The most senior of our clients was born in 1921. Yes, that’s 90 years young. Suppose we had taken his parents aside in 1921 and shown them a highlight video of the future, of all the years leading up to 2012. There would be scenes of a major stock market crash, years of depression with unemployment reaching 25%, soup lines, bread lines, the dust bowl. Then they would see the horrors of a second global war, the unleashing of the atom bomb, a cold war that constantly threatened unspeakable nuclear Armageddon, a presidential assassination, a nasty war in Vietnam.
The movie would show an alarming rise of global terrorism and the demolition of two of America’s tallest buildings, flashpoint wars in the Middle East and the Balkans, numerous oil crises, the bursting of a major tech bubble, and the world taken right to the brink of economic collapse before Wall Street firms were rescued by an advance from the US Treasury.
Chances are, they would watch the video, then uncurl themselves from a fetal ball, and sell everything. The money would be stuffed safely in a mattress–and they would have missed 6-7% real (above inflation) returns a year over a bumpy ride that led to higher and higher levels of wealth.
The point here is that we pay far too much attention to politics, geopolitical events and the latest headlines when we shape our view of the future. Extrapolating from this frame of reference leads us down the road of pessimism, and there are many well-paid enablers who are happy to point us in that direction.
But this obscures the true dynamics of our economy and our culture, which never takes place in the headlines. The real work of building the future is done by the millions of people who get up in the morning and go to work and get things done–who invent things, and build things, and figure things out, bit by bit, until one day we look around and realize that people no longer ride horses to get from one coast to the other.
The real story of the past 90 years would never make the highlight reel. It is the story of incremental improvements in our lives, of more efficient food production, the advent of radio and television and powerful computational and communication devices, the ability to fly anywhere in the world, longer lifespans, more wealth and more interesting things to do with our free time.
Progress and increasing prosperity–and future stock market returns–are the sum of all the effort that ordinary people make every day to build a slightly better world tomorrow than we have today.
If we lose faith in the future, it seems to us, we are losing faith that all that energy and effort and creativity of all those people, not just here but all over the world, will have a beneficial effect on the world going forward. Catch us on a good day, and we’ll readily concede that our elected representatives are not contributing very much to that long-term growth. We expect that there will be wars and downturns and excitingly negative headlines on the highlight reel of the next 50 years.
We think our job, in the profession of financial advice, is increasingly to focus attention away from the highlights to the bigger, less visible picture, to counteract the pernicious effect of the press, the gurus and soothsayers and professional pessimists.
If you feel you have lost faith in the future, we think it is important to remind you of exactly what you have lost faith IN–the hard work that you and your colleagues and neighbors and fellow citizens are contributing to the future every day, the talent and creativity of the human mind, the diligence with which we apply it. These things carried us through fearful challenges, all the way from squatting in caves to private space launches. To include stock funds in our mix is to take the position that the obstacles before us now, even the self-created ones, will not stop that progress, and it seems like a pretty good bet to us.
