August 8, 2019
Forty years ago, August 13, 1979, BusinessWeek (the magazine) ran its infamous cover story, “The Death of Equities.” Of all the magazine covers that have been framed, and hung on the walls of Financial Advisors throughout the world, this must rank as the top one. The article has not aged well. In fact, history has made a laughing stock of the article and the magazine.
As a disinterested 19-year-old, I didn’t read the original run of the essay. I was, however, already investing in my 457 retirement account and today I’m thankful I didn’t read it.
I’ve linked the article below[i] so you can read for yourself if you have the guts—but for brevity, I’ll quote some of the more notable assertions:
- Only the Elderly Remain. At least 7 million shareholders have defected from the stock market since 1970, . . .
- This “death of equity” can no longer be seen as something a stock market rally—however strong—will check.
- Only the elderly who have not understood the changes in the nation’s financial markets, or who are unable to adjust to them, are sticking with stocks. (My favorite quote.)
- Alan B. Coleman, dean of the Southern Methodist University’s business school: “We have entered a new financial age. The old rules no longer apply.”
- For investors, low stock prices remain a disincentive to buy.
- …corporations are following a slightly different strategy: Buying their own shares.
- (And the coup de gras.) Today, the old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared. Says a young U.S. executive: “Have you been to an American stockholders’ meeting lately? They’re all old fogies. The stock market is just not where the action’s at.”
(All the above are directly quoted from the article except for my remarks in parenthesis.)
History has never been kind to those who have attempted to predict the future. The problem is our human tendency toward extrapolation; you simply cannot extrapolate current conditions for very long into the future.
So, in those 40 years since the ridiculous essay, how have all those elderly types who stuck with equities done? The S&P 500 closed on August 13, 1979, at 107.42 and paid dividends at about six bucks per year. On August 13, 2019, the S&P 500 closed at 2,926 and the annual dividend should be about $56 this year. The S&P 500 then is 27 times larger than it was when equities died in 1979. And the dividend is over nine times more today than in 1979.
Inflation was eventually tamed (Thank you Paul Volker!) and today’s prices are about 3.5 times more than 40 years ago. So all those sad-sack “elderly” investors who apparently were too old to see the light of buying gold and did not understand the changes in the nations financial markets hopefully went on to become our very rich grandparents by simply staying invested in the 500 best companies of the country—and not reading BusinessWeek.
Meanwhile, who knows how many investors this article scared out of the market? How many people parked their investments in gold or under the mattress? (By the way, gold was selling for $300 per ounce in 1979. It has risen to slightly north of around $1,500 or about 5 times the 1979 price. And while gold doesn’t tarnish, it remains a piece of yellow metal which earns nothing and pays no dividends.) Whoever wrote the article should have lost his license to publish forever. My only hope is he followed his own advice and did not buy when the “low stock prices . . . disincentivized” him. I hope he waited until the prices were nice and high before he bought.
But wait, there’s more. In case we may wonder if the media has wisened up when it comes to predicting the future of the markets, the NY Times (NYT) ran an opinion piece on May 14, 2012, titled The End of the Affair [ii] and it’s not about Graham Greene’s classic. The NYT piece is about how investors are fleeing the stock market because of the “slow, uncertain pace of financial reform.” And of course, since May 14, 2012, the S&P 500 has gone from 1,338 to well over a double to today’s 2,888.
When we see articles like those mentioned above and when we see investors wholesale dumping their equities based on short-term news (tweets?) we can have faith that we’re not in the middle of a stock-market bubble. Bubbles need speculators who are exuberant about the markets—and as a country, we are certainly not exuberant. So we can continue to invest and collect our shares of the best companies in the world either through new buying or just dividend reinvesting and be happy we’re buying at prices that have others disincentivized!
[i] https://ritholtz.com/1979/08/the-death-of-equities/ Reposted by Barry Ritholtz of “The Big Picture.”
[ii] https://www.nytimes.com/2012/05/15/opinion/end-of-the-affair.html?_r=3&adxnnl=1&adxnnlx=1337869445-GRlGCfU/Vg2GyNIjxCye0g
