December 2015

Faith in the Future

In 1975 (at the ripe old age of 26) I had barely begun my investment journey. The forty years that have followed since arguably represent most of our collective investment lifetimes and a huge educational experience for me.

This month I would like to frame these 40 years in a vivid social and economic landscape. My hope is that the following narrative will help you ‘paint a picture’ in your mind of the reality we have all lived through – (and survived). In turn, my hope is that this will give you a firm base upon which to build your continuing “Faith in the Future”.

1975 – Gerald Ford was President of the United States of America. The World’s population was about 4.1 Billion people about Half of which lived in abject poverty. The population of the United States was about 216 Million ( 5% of the world’s total). In 1975 the U.S. produced total goods and services (called Gross National Product or “GNP”) of approximately 5.5 Trillion Dollars ( $5,500,000,000,000.00) …. The number is to help us paint our picture). The S&P 500 closed at 90 and produced an annual dividend of $3.73. A First Class Postage Stamp cost 10 cents. Among the headlines in the news in 1975 that created fear were two attempts to assassinate President Ford within 17 days, and the fact that Saigon fell during the War in Vietnam.

1985 – It has been a short ten years. Ronald Reagan is now President. The first successful heart transplant was performed this year. The internet domain name system was created, and the song of the year was “We Are The World”. The world’s population has grown to 4.8 Billion. The population of the U.S. is now 238 Million, (4.9% of the World’s) The GNP of the U.S. has grown to 7.7 Trillion Dollars ( $ 7,700,000,000,000.00) an increase of 40%. The S&P 500 closed this year at 211 and now produces a dividend of $8.20 (a little over a 200% increase). A First Class Postage Stamp now costs 22 cents. ( a 100% increase).

1995 – Terrorism hits our shores with the Oklahoma Bombing on April 19th. The Blast destroyed or damaged 324 buildings, 86 cars, killed 168 people and injured 680 others. The prime Minister of Israel, Yitzhak Rabin was assassinated. This was a year with plenty of fear in the news to go around. Global population now stands at 5.7 Billion and the U.S. population hits 266 Million. Our GNP has now risen to $10 Trillion. The S&P 500 closed this year at 616 three times that of 10 years ago and now produces a dividend of a smidgen over $14.

We are now at the halfway point in this historical exercise, and hopefully, our picture is taking shape and starting to show some color. We are witnessing the inevitable increases that the great companies of America and the World are producing (STILL) through constant gains in technology and innovation and the growth they produce.

2005 – Hurricane Katrina mostly destroys the city of New Orleans this year, a land mass the size of the United Kingdom. London experiences its own 911 when bomb attacks on its bus and subway systems kill 52 people. Pope John Paul II dies. The Global population has grown to 6.5 Billion people. ( Abject poverty in the World has fallen from 50% to 33%). The U.S. now stands at 296 Million. We have grown by 80 Million people since 1975 but shrunk to 4.5% of the World’s population. Our GNP is now $14 Trillion. The S&P 500 closed out 2005 at 1,248, Double that of 1995 and now produces a dividend of $22.38 A First Class Postage Stamp now costs 37 cents.

2015 – And Here We Are Today … CHRISTMAS ….. 2015. We are three short weeks from the end of the year and this, Friends, is the story of the last Four Decades of our lives. Today ISIS has cast the Middle East into Chaos and exports its atrocities as far as Paris France. Refugees pour into Europe straining its ability to provide services and raising fears of terrorist infiltration. Today’s news, as usual, gives us plenty of reasons to focus on fear. A great American Icon died this year – Yogi Berra. And he was right when he said: “You’ve got to be very careful if you don’t know where you are going, because you might not get there”. AND “ If the World were perfect, it wouldn’t be”.

TODAY – Our global population has grown over 80% with abject poverty slashed from one in two to one in ten. The U.S. population has grown by almost 50% and today we add another living soul to our census every 14 seconds ! Population density in the U.S. is 85 persons per square mile. Compare this to 300 in France, 680 in the UK, and 870 in Japan. In 1975 we were told by the “experts” that we would run completely out of hydrocarbons by 2015, and yet, through technology and innovation we still are standing on over 100 years of reserves. Our GNP has more than tripled. The S&P 500 has risen more than 20 times its value in 1975. The dividend of the S&P has risen over 12 times the 1975 level. Over this same time frame the cost of living in the good old USA has increased only 4 ½ times. We have surely witnessed the greatest accretion of wealth by the greatest number of people in the history of our planet !! This exponential progress is a continuous, virtuous cycle. It is driven by: The progress of information technology, the spread of the free market around the globe and the continuing ingenuity and innovation of the human mind. Take joy in this friends, and let it fortify our Faith. Faith in the Future.

I plan to take an extended vacation in 2016 to reconnect with my family, and I will be out of the office from 31 December 2015 through 2 February 2106. My office will be open during my absence, and my staff will be working. I will maintain contact.

From My Family to Yours – Merry Christmas

Daniel D. Fencl