"To be an investor you must believe in a better tomorrow." - Benjamin Graham
The concept of dynamism - characterized by vigorous activity and progress - captures the spirit of America's economic landscape. Warren Buffett, in Berkshire Hathaway's 2016 Annual Letter, identifies several pillars supporting this dynamism: Human Ingenuity, the Market System, Talented and Ambitious Immigrants, and the Rule of Law. To these, I'd add Corporate Governance, noting the significant divergence from practices in places like China, and Democracy, as critical frameworks fostering this environment.
Buffett articulates how our market system serves as an "economic traffic cop," adeptly orchestrating the allocation of capital, intellect, and labor to spawn the abundance we witness today.
Reflecting on America's economic feats, he observes a trajectory of prosperity for shareholders that is nothing short of astonishing. Over the 20th century, the Dow Jones Industrials surged from 66 to 11,497, marking a 17,320% capital gain, further sweetened by increasing dividends. This upward trend persisted, with the index reaching 19,763 by the end of 2016 and astonishingly, 39,127 by April 3, 2024 - an additional 98% climb from 2016's close.
This growth narrative is not fleeting. Despite inevitable fluctuations, the trajectory of American business growth is poised for continued ascent. The forces of innovation, productivity enhancements, entrepreneurial vigor, and a plentiful capital supply will ensure this growth.
Yet, in every market narrative, exists the contrarian voices - the "Perma Bears," who perpetually forecast economic downturns. The truth of capitalism, however, is its inherent cycle of disruption and rebirth, creating and dismantling industries in its wake.
Consider the smartphone's impact: products like the Thomas Guide maps were driven out of business and digital camera sales declined by over 97% causing profound disruption. This cycle of disruption and innovation is a testament to the dynamic nature of markets and industries.
Indeed, businesses traverse through a lifecycle, evolving from startups to mature entities before facing decline. Understanding this cycle, as explained by Aswath Damodaran, provides invaluable insights into the nature of business growth and the guaranteed decline of every business over time.
Market fluctuations, ranging from corrections to panics, are inevitable. Yet, these moments present opportunities to acquire great businesses at discounted prices - what American doesn’t like a sale? When the sale comes to the markets go shopping, don’t run out of the store!
I remember my dad’s advice to me post 2008 financial-crisis when the real estate market was in shambles and everyone had walked away from their homes. He said: “go buy as many houses as you possibly can.” He was right, his advice underscored two timeless investing truths: the lucrative potential in contrarian strategies and the wisdom of being "fearful when others are greedy and greedy when others are fearful."
In sum, the essence of investing lies not just in the act of acquisition, but in the steadfast belief in a better tomorrow. America's blend of market system ingenuity promises to continue delivering exceptional returns so be optimistic in the face of uncertainty and just keep buying.
