“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” —Thomas Edison
Human ingenuity, accessibility, know-how, hard work, and providence are touted as the right mix of ingredients for society’s continuous economic evolution. Since the origin of fire, wheel, and paper – the human spirit has marched a slippery slope upward and onward. There have been plagues, floods, famine, wars, and political absurdity that have deterred our advancement, and yet, progress somehow happens. Some of the inventions that have brought us to this point in time are the printing press, the incandescent light bulb, the internal combustion engine, the telephone, the automobile, the airplane, semiconductors, medicine, personal computers, the internet, artificial intelligence and everything digital. We are living in the Fourth Revolution. This time span has been approximately 125,000 years with the bulk of human beings’ standard of living advancement occurring the past two centuries. I would add financial markets to the list of incredible manmade inventions.
The stock market for generations was mostly privy to the well-to-do, but not so readily accessible to working-class savers and investors. Things have changed. Now, anyone can invest their hard-earned money and have it professionally managed with minimal amounts. 50 years ago, less than 20% of the population owned any stocks or bonds; today, over 50% of households own stocks, bonds, and real estate. I believe that figure will be meaningfully higher within the next decade, and that more people will be invested in growth and income-producing assets, enabling them to have a better and more secure standard of living. This is excellent for our global society.
The Federal Reserve reports total household net worth to be $113.4 trillion and is comprised of 70% financial assets and 30% nonfinancial assets. Marketable securities (stocks, bonds, mutual funds) at 29% are the largest segment of personal net worth. Homeownership equity accounts for 26%; while pensions and private businesses amount to 24%, and 12%, respectively.
Financial markets are vital for companies and governments to fund their operations and meeting their obligations. The stock market has been a crucial means for entrepreneurs to raise the necessary capital to fund their new ideas of innovation and for rapid growth. They are able to raise money by offering equity interests to public investors as owners and shareholders. The S&P 500 index includes 500 leading companies and covers 80% of available market capitalization totaling approximately $25 trillion. Since 1928, the companies in the S&P 500 index have been integral to making the American dream a reality. For those investors willing to accept the inherent risk of market volatility and uncertainty with owning stocks have been justly rewarded over the long-term. During this timeframe, the S&P 500 posted an average annual return of 11.3%, including reinvested dividends, according to Robert Shiller. Ironically, the yearly returns have only been within 1% of the 11.3% historical average 6% of the time, as depicted in the scatter plot.
America and the world over are experiencing wealth expansion.
History of the ’09 Bull Market
In 91 years, the index has posted gains 66 years, and losses 25 times. The S&P 500 has been up 73% of all years, and down 27% of the time; losses averaged minus 13.3%, while gains averaged 20.7%. Generally, the fourth quarter has been full of holiday cheer and financial rewards. In 2018, the S&P declined 13.9% during the final quarter of the year, which proved to be the ninth-worst Q4 in the 91-year history. So, will Santa bring silver and gold to all socially conscious savers and investors in Q4 2019, or will this be the second year in a row that stockings are filled with lumps of coal? The last time the S&P posted back-to-back losing fourth quarters was in 1979. Nothing is ever guaranteed in the stock market, but the odds favor the bulls.
—William “Chip” Corley