The Secret to Braving a Wild Market
For most of the past decade, investing has required almost no courage at all. That may well be changing.
For most of the past decade, investing has required almost no courage at all. That may well be changing.
In the fall of 1939, just after Adolf Hitler’s forces blasted into Poland and plunged the world into war, a young man from a small town in Tennessee instructed his broker to buy US$100 worth of every stock trading on a major U.S. exchange for less than $1 per share.
His broker reported back that he’d bought a sliver of every company trading under $1 that wasn’t bankrupt. “No, no,” exclaimed the client, “I want them all. Every last one, bankrupt or not.” He ended up with 104 companies, 34 of them in bankruptcy.
The customer was named John Templeton. At the tender age of 26, he had to borrow $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 how he had felt when he bought those stocks in 1939.
“I regarded my own fear as a signal of how dire things were,” said Mr. Templeton, a deeply religious man. “I wasn’t sure they wouldn’t get worse, and in fact they did. But I was quite sure we were close to the point of maximum pessimism. And if things got much worse, then civilization itself would not survive—which I didn’t think the Lord would allow to happen.”
The next year, France fell; in 1941 came Pearl Harbor; in 1942, the Nazis were rolling across Russia. Mr. Templeton held on. He finally sold in 1944, after five of the most frightening years in modern history. He made a profit on 100 out of the 104 stocks, more than quadrupling his money.
Mr. Templeton went on to become one of the most successful money managers of all time. The way he positioned his portfolio for a world at war is a reminder that great investors possess seven cardinal virtues: curiosity, scepticism, discipline, independence, humility, patience and—above all—courage.
It would be absurd and offensive to suggest that investing ever requires the kind of courage Ukrainians are displaying as they fight to the death to defend their homeland. But, for most of the past decade or more, investing has required almost no courage at all, and that may well be changing.
Inflation rose to a 7.9% annual rate last month, the highest since 1982, and some analysts think oil prices could hit $200 a barrel.
In early March, Peter Berezin, chief global strategist at BCA Research in Montreal, put the odds of a “civilization-ending global nuclear war” in the next year at an “uncomfortably high 10%.”
In another sign of the times, a 22-year-old visitor to the Bogleheads investing forum on Reddit asked plaintively this week: “I can’t get over the thought that by the age of 60 will earth still be livable? Should I be using [my savings for retirement] somewhere else and live in the ‘now’?”
Yet the S&P 500 has lost less than 1% since Feb. 24, the day Russia launched its onslaught. Over the same period, according to FactSet, more than $770 million in new money has flowed into ARK Innovation, the exchange-traded fund run by aggressive-growth investor Cathie Wood.
That’s a familiar pattern. On Oct. 26, 1962, near the peak of the Cuban missile crisis, The Wall Street Journal reported that “If it doesn’t end in nuclear war, the Cuban crisis could give the U.S. economy an unexpected lift and maybe even postpone a recession.”
From their high in mid-October 1962, U.S. stocks fell only 7% even as the world teetered on the brink of nuclear war.
Nevertheless, a grim era for investing was not far off, in which stocks went nowhere and inflation raged. Had you invested $1,000 in large U.S. stocks at the beginning of 1966, by September 1974 it would have been worth less than $580 after inflation, according to Morningstar. You wouldn’t have stayed in the black, after inflation, until the end of 1982.
That shows two things.
First, glaringly obvious big fears, like the risk of nuclear war, can blind investors to insidious but more likely dangers, like the ravages of inflation.
Second, investors need not only the courage to act, but the courage not to act—the courage to resist. By the early 1980s, countless investors had given up on stocks, while many others had been hoodwinked by brokers into buying limited partnerships and other “alternative” investments that wiped out their wealth.
If it feels brave to you to rush out and buy energy stocks, you’re kidding yourself; that would have been courageous in April 2020, when oil prices hit their all-time low. Now, it’s a consensus trade. Courage isn’t doing the easy thing; it’s doing the hard thing.
Making a courageous investment “gives you that awful feeling you get in the pit of the stomach when you’re afraid you’re throwing good money after bad,” says investor and financial historian William Bernstein of Efficient Frontier Advisors in Eastford, Conn.
You can be pretty sure you’re manifesting courage as an investor when you listen to what your gut tells you—and then do the opposite.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: March 11, 2022.
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CommSec research reveals this state is leading the country in economic growth, unemployment, construction and dwelling starts
South Australia is currently the strongest state or territory economy in the country, with economic activity 9.1 percent above its decade-average in the December quarter, according to CommSec research. NSW was second with economic output running 8.6 percent above its long-run average, followed by Victoria with 8.5 percent, the ACT at 8.3 percent and Western Australia at 6 percent.
Economic activity in both Queensland and Tasmania was 4.5 percent above average while the Northern Territory underperformed its long-term average by 0.5 percent.
The CommSec research ranks states and territories on several key economic metrics and compares the latest quarterly data with each area’s decade average. South Australia ranks first on four of the eight key indicators. They are economic growth, unemployment, construction and dwelling starts.
Western Australia ranks first on population growth and business and equipment investment. Population growth has been a key element in Perth and regional Western Australia becomingthe country’s hottest property markets over the past 12 months. CoreLogic figures released this week show home values are up 21.1 percent in Perth and 13.3 percent in the state’s regions.
Despite high inflation, retail spending remained above the long-term average in all states and territories in the December quarter. The ACT led with retail expenditure 12.2 percent higher than its long-term average, followed by Western Australia with 11.3 percent, Victoria at 11.2percent and Queensland at 11.1 percent.
Queensland is in the top spot for new home loans. Propelling this is very strong internal migration and a doubling of the First Home Owners Grant to $30,000 from 20 November last year. New home loans issued to first home buyers in November surged to a 15-month high, according to data from the Australian Bureau of Statistics. Queensland is currently the second strongest housing market, with home values up 16.1 percent in Brisbane and 11.2 percent in regional areas over the past year.
In all states and territories except the Northern Territory, housing finance commitments remained above decade averages in the December quarter. The value of home loans in Queensland was 21.1 percent higher than the state’s long-term average. The next strongest was Western Australia, up 17.5 percent, South Australia, up 14.2 percent, and the ACT, up 12 percent. The new CoreLogic data reveals 15 consecutive months of growth in the national median price, despite high interest rates.
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This stylish family home combines a classic palette and finishes with a flexible floorplan