On the next page you can see the very first article on Value Investing that we published in September 1995. Next to it is our most recent one, written this month. Perhaps you’ll see what we see: that the principles of Value Investing remain very much the same.
The world we are looking at today is very different from 20 years ago. Back then we were in a raging bull market. U.S. growth was robust, inflation was low, the foreign trade numbers were excellent, and Wall Street was excited about the possibility of a cut in the capital gains tax on the horizon. In one of the early issues, we ran a story called “Anything Left to Worry About?” because things were going so well. If there was one thing of concern, it was that U.S. growth could get too strong. The worry was that if growth reached or exceeded 4%, the Fed would have to put on the brakes and the long Treasury yield could go to 7.5%. Yes, 7.5%! Can you imagine that?
Global trade was also soaring. There were great hopes for billions of people in emerging markets joining an integrated global market economy. Technology stocks were up, and the promise of the internet was endless – this was way before we worried about privacy or security or saw the ugliness of internet trolls. In our very first newsletter, our guest commentator, the economist David Hale, noted that 1995 could be the year that PC sales would exceed television sales for the first time, and that was a remarkable thing.
We quoted The Economist on the revolution in telecommunications and “the death of distance,” the idea that it would no longer cost any more to call around the world than around the corner.” The magazine opined that this could be “the single most important economic force shaping society in the first half of the next century.”
We wrote with fascination about India attracting back office work from multi-national companies, and Nike being able to run a global athletic shoe empire without owning a single manufacturing plant. We were very interested in China and its huge potential, though there were few ways to express that interest. In 1995, the total market capitalization of Chinese issues available to foreigners – in Hong Kong, Shanghai, Shenzhen, and New York combined – was $6 billion. To put that in perspective, the Chinese government recently spent $235 billion to try to prop up the failing stock market, to little avail.
Looking ahead, we can’t predict what we’ll be writing about in twenty years. We are talking today about driverless cars, the internet of things, much better forms of sustainable energy, and new frontiers in health care and longevity. We know that the companies we invest in will change and some will change dramatically. Nevertheless, the core valuation principles of focusing on earnings and dividends at a reasonable Value price will stay the same.
Finally, we will always find it fascinating to revisit the quirks of our own very human behavior, like why we procrastinate, what makes us resilient, and why it’s so hard to buy at the bottom (or lose weight). We have met the enemy and he is indeed us. Here’s to the next 20 years.