I would like to just spend just a couple of minutes giving you a little perspective
on how you might think about investments, as opposed to
the tendency to focus on what’s happening today, or even this minute, as you go through.
And to help me in doing that, I’d like to go back through a little personal history.
And we will start — I have here a New York Times
of March 12th, 1942. I’m a little behind on my reading. (Laughter)
And if you go back to that time,
Just about three months since we got involved in a war which we were losing at that point.
The newspaper headlines were filled with bad news from the Pacific. And I’ve taken
just a couple of the headlines from the days preceding
March 11th, which I’ll explain was kind of a momentous day for me.
And so you can see these headlines. We’ve got slide two up there, I believe. And
we were in trouble, big trouble, in the Pacific. It was only going to be a couple
months later that the Philippines fell, but we were getting bad news.
We might go to slide three for March 9th. Hope you can read the headlines, anyway.
The price of the paper’s three cents, incidentally.
The — and let’s see, we’ve got March 10th up there,
as slide — I — when I get to where there’s advanced technology of slides,
I want to make sure I’m showing you the same thing that I’m seeing in front of me.
So anyway, on March 10th, when again, the news was bad: “Foe Clearing Path to Australia.”
And it was like it — the stock market had been reflecting this.
And I’d been watching a stock called Cities Service
preferred stock, which had sold at $84 the previous year. It had sold at $55
the year — early in January, two months earlier — and now it was down to $40 on March 10th.
So that night, despite these headlines, I said to my dad — I said, “I think I’d like to pull
the trigger, and I’d like you to buy me three shares of Cities Service preferred” the next day.
And that was all I had. I mean, that was my capital accumulated
over the previous five years or thereabouts. And so my dad, the next morning, bought three shares.
Well, let’s take a look at what happened the next day. Let’s go to the next slide, please.
And it was not a good day. The stock market, the Dow Jones Industrials, broke 100 on the downside.
Now they were down 2.28 percent as you see, but that was the equivalent of about
a 500-point drop now. So I’m in school wondering what is going on, of course.
Incidentally, you’ll see on the left side of the chart, the New York Times put the Dow Jones
Industrial Average below all the averages they calculated. They — they had their own averages,
which have since disappeared, but the Dow Jones has continued.
So the next day — we can go to the next slide — and you will see what happened. The stock
that was at 39 — my dad bought my stock right away in the morning because I’d asked him to,
my three shares. And so I paid the high for the day.
That 38 1/4 was my tick, which was the high for the day. And by the end of the day,
it was down to 37, which was really
kind of characteristic of my timing in stocks that was going to appear in future years. (Laughs)
But it was on the — what was then called the New York Curb Exchange,
then became the American Stock Exchange.
But things, even though the war, until the Battle of Midway,
looked very bad and — and if you’ll turn to the next slide, please — you’ll see that
the stock did rather well. I mean, you can see where I bought at 38 1/4.
And then the stock went on, actually, to eventually be called by the Cities Service Company
for over $200 a share.
But this is not a happy story because, if you go to the next page, you will see that I — (Laughter)
Well, as they always say, “It seemed like a good idea at the time,” you know. (Laughter)
So I sold — I made $5 on it. It was, again, typical — (laughs) — of my behavior. But
when you watch it go down to 27, you know, it looked pretty good to get that profit.
Well, what’s the point of all this? Well, we can leave behind the Cities Service story,
and I would like you to, again, imagine yourself back on March 11th of 1942.
And as I say, things were looking bad in the European theater as well as what was going on
in the Pacific. But everybody in this country knew America was going to win the war. I mean, it
was, you know, we’d gotten blindsided, but we were going to win the war. And we knew
that the American system had been working well since 1776.
So, if you’ll turn to the next slide, I’d like you to imagine
that at that time you had invested $10,000. And you put that money in an index fund — we
didn’t have index funds then — but you, in effect, bought the S&P 500.
Now I would like you to think a while, and don’t — do not change the slide here for a minute.
I’d like you to think about how much that $10,000 would now be worth, if you just had one
basic premise, just like in buying a farm you buy it to hold throughout your lifetime and
depend — and you look to the output of the farm to determine whether you made a wise investment.
You look to the output of the apartment house to decide whether you made a wise
investment if you buy an apartment — small apartment house — to hold for your life.
And let’s say, instead, you decided to put the $10,000 in and hold
a piece of American business, and never look another
stock quote, never listen to another person give you advice or anything of this sort.
I want you to think how much money you might have now. And now that you’ve got
a number in your head, let’s go to the next slide, and we’ll get the answer.
You’d have $51 million. And you wouldn’t have had to do anything. You wouldn’t have
to understand accounting. You wouldn’t have to look at your quotations every day like I
did that first day — (laughs) — when I’d already lost $3.75 by the time I came home from school.
All you had to do was figure that America was going to do well over time, that we would
overcome the current difficulties, and that if America did well, American business would do well.
You didn’t have to pick out winning stocks. You didn’t have to pick out a winning time
or anything of the sort. You basically just had to make one investment decision in your life.
And that wasn’t the only time to do it. I mean,
I can go back and pick other times that would work out to even greater gains.
But as you listen to the questions and answers we give today, just remember that the overriding
question is, “How is American business going to do over your investing lifetime?”
I would like to make one other comment because it’s a little bit interesting. Let’s say you’d
taken that $10,000 and you’d listened to the prophets of doom and gloom around you, and
you’ll get that constantly throughout your life. And instead, you’d used the $10,000 to buy gold.
Now for your $10,000 you would have been able to buy about 300 ounces of gold. And while the
businesses were reinvesting in more plants, and new inventions came along, you would go down
every year in your — look in your safe deposit box — and you’d have your 300 ounces of gold.
And you could look at it,
and you could fondle it, and you could — I mean, whatever you wanted to do with it. (Laughter)
But it didn’t produce anything. It was never going to produce anything.
And what would you have today? You would have 300 ounces of gold just like you had in March of 1942,
and it would be worth approximately $400,000.
So if you decided to go with a nonproductive asset — gold — instead of a productive asset,
which actually was earning more money and reinvesting and paying dividends and maybe
purchasing stock — whatever it might be — you would now have over 100 times
the value of what you would have had with a nonproductive asset.
In other words, for every dollar you had made in American business, you’d have less than a penny
by — of gain — by buying in this store of value, which people tell you to run
to every time you get scared by the headlines or something of the sort.
It’s just remarkable to me that we have operated in this country with the greatest tailwind at our
back that you can imagine. It’s an investor’s haven — I mean, you can’t really fail at it
unless you buy the wrong stock or just get excited at the wrong time.
But if you’d — if you owned a cross-section of America and
you put your money in consistently over the years,
there’s just — there’s no comparison against owning something that’s going to produce nothing.
And there — frankly — there’s no comparison
with trying to jump in and out of stocks and pay investment advisors.
If you’d followed my advice,
incidentally — or this retrospective advice — which is always so easy to give — (Laughs)
If you’d follow that, of course you — there’s one problem.
Your friendly stock broker would have starved to death.
I mean, you know, and you could have gone to the funeral to atone for their fate. But the truth is,
you would have been better off doing this than a very, very, very high percentage
of investment professionals have done, or people have done that are active that — it’s very hard
to move around successfully and beat, really, what can be done with a very relaxed philosophy.
And you do not have to be — you do not have to know as much about
accounting or stock market terminology or whatever else it may be, or what the Fed is
going to do next time and whether it’s going to raise three times or four times or two times.
None of that counts at all, really, in a lifetime of investing. What counts is having
a philosophy that you’ve — that you stick with, that you understand why you’re in it,
and then you forget about doing things that you don’t know how to do.