Investment News

The death of equities

On “The Big Picture” blog of Barry Ritholtz you can find the full text of BusinessWeek’s infamous article “The Death of Equities,”

It’s definitely worth a read if you’ve got a spare half hour.

The article celebrates its 40th anniversary on 13 August and I thought that would be an appropriate time to look back at how dead equities ended up being.

Sure it relates to the US stockmarket, but that’s not at all relevant to the overall message to wit:

  1. Equities do not die, and the world does not end;
  2. The S&P 500 closed on 13 August 13 1979 at 107.42; today it is around 2850 (up 2,500%);
  3. The dividend in 1979 was $6 now it is more than $50 (up 760%);
  4. Over the same period US inflation is up barely 3.5 times (up 250%);
  5. US real GDP in 1979 was well below $7 trillion; today it is around $19 trillion (up 171% AFTER inflation);
  6. Real GDP per capita went from $31,000 to $57,500 (up 85% AFTER inflation).

To save you reading the BusinessWeek article, I’ll condense it to just four words:

“This time is different.”

In fact this time is never different. It just looks different, as it did 40 years ago. Imagine if you had been daft enough to bail out of equities in 1979….

The financial press simply can’t help themselves, neither then nor now, from lamely extrapolating “This is how things are right now; therefore this is how they’ll remain in future, if not forever.”

And this is always wrong, financial journalism’s fuel always has and will always be negativity. Whereas we understand that optimism remains the only realism; it is the only view that matches both the facts and the historical record.


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