Last month I wrote about the three main economic systems of the world: capitalism, communism and socialism. In spite of the often headline-grabbing shortcomings of all systems that I tried to be very open about in my previous writings, the underlying economics of capitalism seem to bear fruit in the World Bank report that 800 million people were lifted out of extreme poverty in the last 40-years[i]. Given May 1 is also known as International Workers Day, let’s see how capitalism has worked for the worker-investor over this history.
Stock Ownership
As a matter of context, 58% of all adult Americans own stocks[ii]. The US stock market exchanges now make it easier for investors to own stocks, and the increase in ERISA plans (company savings plans like 401k plans, etc.) over the past roughly 50 years since its passage (1976) has fueled much of that ownership.
Market Fluctuations Over the Last 50 Years
Also as context, and very important to the crucial wisdom that I want to pass on in this letter, keep in mind the past 50 years (December 31, 1972 – December 31, 2022) have been a bumpy ride for investors. In fact, there were three different times that the equities (stock) market – defined here as the S&P 500 – has dropped nearly 50% in these 50 years.
You will remember at least one, if not all of them:
- January 1973 – October 1974. The S&P 500 declined 48%
- March 2000 – October 2002. The S&P 500 declined 49%.
- October 2007 – March 2009. The S&P 500 declined 57%.
What This Means For Investors
Now, given that tremendous drop in wealth that would have accompanied EVERY SINGLE OCCASION, what would we see at the end? Literally millions of company decisions had to be made as companies had to survive oil embargoes that quadrupled the price of energy in the first scenario, the dot.com bubble imploded in the second, and the subprime mortgage catastrophe ravaged the world in the third.
Absolutely horrendous situations for sure, but has this tremendous volatility ruined the long-term wealth of investors? In bullet form, let me tell you the answer in no uncertain terms: No.
Over this period:
- The earnings on the S&P 500 rose 35 times ($6.17 to $219E on earnings, broader S&P 500 index 118 – 3,840).
- The cash dividend of the S&P 500 rose 21 times, far outstripping inflation which rose “only” 7 times ($3.19 to $66.92, and CPI going from 43 to 297).
- Over this entire period, the annual return of the S&P 500 (with dividends reinvested) was 10.52%[iii] DESPITE HALVING ON THREE DIFFERENT OCCASSIONS.
- The above figures would have seen $100 invested in the beginning of 1972 turn into $16,477 in 2023.
Looking Ahead with Optimism
The ingenuity of mankind has been demonstrated time and time again to overcome the most trying of circumstances. The aggregate intelligence, creativity and persistence of US companies to overcome stupefying obstacles while facing fierce competition has been empirically demonstrated time and time again. This reality simply cannot be forgotten. This result is the reason for optimism for the future…and to never forget that market prices will always migrate back to their fundamental values if we just keep our heads when these temporary declines in values occur.
Those datasets are the reason to celebrate the worker – whether it be the organization’s landscaper or its leader– for the benefit of all mankind.
It remains my distinct privilege and deep honor to serve you well.
Patrick Zumbusch
Founder and CEO
[i] “Lifting 800 Million People Out of Poverty – New Report Looks at Lessons from China’s Experience” (Who We Are, World Bank, April 1, 2022)
[ii] “What Percentage of Americans Own Stock?” (Lydia Saad and Jeffrey M. Jones, Gallup, May 12, 2022)
[iii] “Stock Market Returns Since 1972” (OfficialData.org, April 30, 2023)
