So the American Stock Exchange for the Last 55 Years In the
fall of 1939, just after Adolf Hitler’s forces raided Poland and plunged the world into war, a young man from a small town in Tennessee instructed his broker to buy. $ 100 of all shares traded on a major US stock exchange at less than $ 1 per share.
His he broker reported that he had bought a small share of every company trading under $ 1 that was not bankrupt. “No, no”, the customer exclaims, “I want them all. Right up to the end, bankrupt or not.” He ends up with 104 companies, 34 of which are bankrupt.
The client was named John Templeton. At the tender age of 26, he borrowed $ 10,000 – more than $ 200,000 today – to finance his courage.
Mr. Templeton died in 2008, but in December 1989 I interviewed him at his home in the Caribbean. I asked him how he felt when he bought those shares in 1939.
“I took my fear as a sign of how terrible things were,” replied Templeton, a deeply religious man. “I wasn’t sure they wouldn’t get worse, and indeed they did. But I was pretty sure we were nearing the point of maximum pessimism. And if things got much worse, then civilization itself would not survive – which I didn’t think the Lord did. would have allowed that to happen. ”
The following year, France fell; Pearl Harbor arrived in 1941; in 1942, the Nazis were crossing into Russia. Mr. Templeton held out. He finally sold in 1944, after five of the scariest years in modern history. He made a profit on 100 of the 104 stocks, more than quadrupling his money.
Mr. Templeton has become one of the most successful money managers of all time. The way he has positioned his portfolio for a world at war reminds us that big investors have seven cardinal virtues: curiosity, skepticism, discipline, independence, humility, patience and, above all, courage.
It would be absurd and insulting to suggest that investing requires the kind of courage Ukrainians are showing as they fight to the death to defend their homeland. But, for most of the last decade or more, investing has required almost no courage, and that could change.
Inflation rose in the US to an annual rate of 7.9% last month, the highest since 1982, and some analysts think oil prices could reach $ 200 a barrel.
In early March, Peter Berezin, chief global strategist at BCA Research in Montreal, put the odds of a “global nuclear war ending civilization” next year at an “uncomfortably high 10%.”
In another sign of the times, a 22-year-old visitor to the Bogleheads investment forum on Reddit plaintively asked this week, “I can’t get over the thought that by the age of 60 the earth will still be livable. I should use [mine. save for retirement somewhere else and live in the present
”
Yet, the S&P 500 index has lost less than 1% since February 24, the day Russia launched its attack. Over the same period, more than $ 770 million of new money flowed into ARK Innovation, the trading fund managed by aggressive growth investor Cathie Wood, according to FactSet.
This is a familiar sounding model. On October 26, 1962, near the peak of the Cuban missile crisis, the Wall Street Journal wrote that “If it does not end in a nuclear war, the Cuban crisis could give the US economy an unexpected boost and possibly even postpone a recession.” . From their high in mid-October 1962, US stocks fell only 7% even as the world teetered on the brink of nuclear war.
However, a gloomy era for investing was not far off, when stocks were going nowhere and inflation was rampant. According to Morningstar’s calculations, if you had invested $ 1,000 in large US stocks in early 1966, they would have been worth less than $ 580 after inflation in September 1974. Until the end of 1982 you would not have remained in surplus, given inflation.
This proves two things.
First, large, blatantly obvious fears, such as the risk of nuclear war, can blind investors to insidious but more probable dangers, such as the ravages of inflation.
Second, investors need not only the courage to act, but also the courage not to act, to resist. By the early 1980s, countless investors had given up on their shares, while many others had been duped by brokers into buying unlisted companies and other so-called alternative investments that wiped out their wealth.
If it seems brave to you to rush out and buy energy stocks, you are kidding yourself; he would have been brave in April 2020, when oil prices hit an all-time low. Now, and a follow common sense. Courage is not about doing the easy thing; and do the hard thing.
Making a bold investment “gives you that horrible feeling in the pit of your stomach when you’re afraid of throwing good money after bad money,” says investor and financial historian William Bernstein of Efficient Frontier Advisors.
You can be pretty sure that you show courage as an investor when you listen to what your gut tells you and then do the opposite.
