With another year closed, and a New Year at our doorstep, we would like to share with you some of our thought, and our feelings about the future.
As we have met with you from time to time, we have shared our optimism and faith in the future. We understand that it is natural to have anxiety about the financial markets, so we wanted to give you this letter as a reminder to all of us just where we have been, and what we have achieved in the short span of 40 years.
For starters, I thought we might take a look at some Population numbers, Gross Domestic Product (GDP), and the S&P 500 at specific points during this period, namely the years ending in 5. Granted, we don't have all of the 2015 data yet, but I think we can get close enough without doing intellectual violence to this exercise. Along the way for additional perspective, we'll look at some events that alternately troubled or uplifted us in each of these landmark years.
Saigon falls; President Ford escapes two assassination attempts within seventeen days. Margaret Thatcher becomes the first woman leader of Britain's Conservative Party. Andrei Sakharov, the great hero of Soviet resistance, wins the Nobel Peace Prize. An American and a Soviet spacecraft link up in space. U.S. postage stamp costs ten cents.
- Global Population: 4.1 billion, (1/2 live in extreme poverty)
- U.S. Population: 216 million
- GDP: $5.49 trillion
- S&P 500 close: $90.19
Gorbachev comes to power in the Soviet Union, and meets with President Reagan. The internet domain name system is created. Windows 1.0 is published, and the first successful human heart transplant takes place. U.S. postage stamp costs twenty two cents.
- Global Population: 4.85 billion
- U.S. Population: 238 million
- GDP: $7.71 trillion
- S&P 500 close: $211.28
Oklahoma City bombing occurs. OJ Simpson's murder trail begins and ends. Israeli Prime Minster is assassinated. The Rock and Roll Hall of Fame and Museum opens in Cleveland. U.S. postage stamp costs thirty two cents.
- Global Population: 5.7 billion
- U.S. Population: 266 million
- GDP: $10.28 trillion
- S&P 500 Close: $615.93
Hurricane Katrina devastates an American land mass larger than Great Britain. Saddam Hussein goes on trial for his life. July 7 becomes London's 9/11, as coordinated attacks on the bus and subway system claim 52 lives. Pope John Paul ll dies. U.S. postage stamp costs thirty seven cents.
- Global Population: 6.5 billion
- U.S. Population 296 million
- GDP: $14.37 trillion
- S&P 500 Close: $1,248.29
ISIS casts the Middle East into chaos, and caries out terrorist atrocities in Paris and elsewhere. Refugees pour into Europe. The world's leading nations reach and accord with Iran on its nuclear development program. U.S. postage stamp costs forty nine cents.
- Global Population: 7.29 billion, (less than 1 in 10 of whom live in extreme poverty)
- U.S. Population: 322 million
- GDP $16.39 trillion (9/30/15)
- S&P 500 Close: $2,078.36 (12/29/15)
So, this is the tale of four decades:
- Global population is up nearly 80%, with extreme poverty slashed from one human in two to one in ten, creating wave upon wave of new middle class consumers.
- U.S. population is up by half, and gaining a new person every fourteen seconds. And still with plenty of room to grow. Population density per square mile in this country is 85, compared with almost 300 in France, 680 in UK, and 870 in Japan. Abundant natural resources, with mineral rights vested in the landowner. A hundred year's worth of hydrocarbon energy reserves.
- Real GDP more than tripled, on only a 50% population increase, meaning real GDP per capita has soared.
- The S&P 500 rose more than twenty times. Including an earnings increase in excess of fifteen times, and a dividend boost approaching twelve times.
Surely this is the greatest accretion of real wealth by the greatest number of people in the history of the world. What are the mega trends underpinning this spectacular economic and financial progress? There are two, and of course they form a virtuous cycle.
- The spread of the free market
Liberty had vanquished communism and the most extreme iterations of socialism during this time period. This cultivated the way for our modern day global economy.
- Exponential progress in information technology
Today a middle school child carries in her backpack a smartphone with more computing power than the state of the art mainframe had in 1975. This growth in technology continues at a rampant rate. We are excited to see what technologies and innovations come forth in the next 40 years.
We may never be able to tell what stocks or sectors of the market will win each year (even though we may wish we could), but we are confident and have a positive attitude for the future and we hope this letter helps your "vantage" point as well.