Not long ago on “Money Matters” (9-11 a.m. Sundays on News 95.5 and AM 750 WSB), I was discussing some of the highlights that came out of Warren Buffett’s recently released annual shareholder letter. The letter always contains several juicy nuggets of investment perspective.
An interesting call came into the show. Philip, a 28-year-old millennial, asked an important question, “When we are in a bull market (the stock market is going up), is that a good time to invest, or not?” His worry was simple. If he were to put money into stocks today and the market heads south, does he lose?
Buffett might approach the question in the following way: Of course, the answer depends on how long Philip has to invest. In the short run, over the next week or month or year, it’s impossible for anyone to give a definitive answer. So the answer depends on time. Today or this minute may or may not be a “good” time to invest, but it’s always a good time to be an investor. If you own solid growing businesses, then the companies themselves will be even better and bigger over the next several years.
My favorite line from Buffett’s letter this year again reinforces this point. “For 240 years, it’s been a terrible mistake to bet against America, and now is no time to start.” He reminded readers that time has produced remarkable gains in U.S. equity markets, noting that, “In America, gains from winning investments have always far more than offset the losses from clunkers. During the 20th century, the Dow Jones industrial average — an index fund of sorts — soared from 66 to 11,497, with its component companies all the while paying ever-increasing dividends.” Today, 16 years after the turn of the century, the Dow Jones has tacked on another approximately 7,000 points.
Buffett's optimism is grounded by one very important overriding thesis. This thesis, ever so simply put, is that "the Economic Pie gets bigger" and will continue to do so due to growth in population. Fortunately, both the U.S. and global populations continue to grow.
According to the Ecology Global Network, there are about 131 million births per year on Earth. That's approximately 360,000 babies born every day.
The same study shows that there are 55 million deaths each year, or approximately 151,000 per day.
Let’s put these numbers into context:
• About seven football stadiums* full of people are born every day.
• About three football stadiums full of people die every day.
* This assumes a stadium holds 50,000 people.
This explains why we've seen our global population balloon from the year 1900, when there were about 1.6 billion people, to today's approximately 7 billion people. By the year 2030, there are expected to be over 8 billion people on Earth, according to the Ecology Global Network's population estimates.
This story of an increasing global population and workforce is an integral part of why the “Economic Pie” around the world continues to grow. More people demanding more goods (i.e. houses, cars, food, technology, medicine, fuel, etc.) creates an ever-increasing demand to supply those goods. That means companies will continue to meet that ever-increasing demand; hence, their earnings have the opportunity to grow over time. Consequently, the “pie gets bigger.”
So regardless of how cloudy the current five-day forecast is for markets, a much longer term view points toward a sunnier picture.
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