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The long-term view



March 03, 2009 – Comments (8) | RELATED TICKERS: TZA , FAZ , ERX

A moment ago I realized why I don't see eye-to-eye with the folks who say that if you buy and hold for 40 years, you're going to do alright. It's not that there's any evidence that they're wrong. It's just that the evidence that they're right is based on a mere 100-150 years of data.

That is to say, just because the U.S. economy has always recovered from what ails it within 20 years or so, that's not proof that it always will. In fact, the real long-term view (4000+ years of recorded human history) teaches us that short-term recoveries in a civilization's economy are always followed by total collapse, or protracted insignificance at best. Egypt was practically wiped out and remains insignificant today. Rome was wiped out, and has ceased to be an empire for more than 1500 years. The Aztecs - wiped out. The Mohammedan Empire - faded and receded into insignifance (sorry, DWI). Even China has taken its sweet time reclaiming its old strength and global significance. In the 1800's and 1900's China was the economic runt of the Asian litter.

You might say that this proves nothing. Well, then: what does it prove that an investment in the U.S. stock market at any time in the last 100 years was handsomely rewarded if held for 25 years or more? Maybe the last 100 years was the U.S.'s economic heyday. Maybe we've got another 100 years of prosperity after this economic downturn passes. You don't know.

Nothing of this world is eternal. That goes for the U.S. stock market at least as emphatcally as for anything else.

Keep paying attention to the fundamentals of what you're investing in. I like how Peter Schiff puts it: there's a bull market somewhere. We may not have another one here until our children's children's children start to die of old age. But there will always be opportunity somewhere for a shrewd, alert investor.

8 Comments – Post Your Own

#1) On March 03, 2009 at 1:10 AM, Option1307 (30.56) wrote:

This is the key point that many fall to see or are in denial about.

Just because it has worked in the past, doesn't mean that it will continue to in the future. Its easier to be cautious than dead wrong... 

Nice thoughts. 

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#2) On March 03, 2009 at 1:20 AM, riskybus (< 20) wrote:

Well put. I think the average empire (I don't like to use that word for the U.S.) lasts more than 200 years. In this new age of globalization I think the next "empire" would have to be a worldwide one.

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#3) On March 03, 2009 at 10:32 AM, FleaBagger (27.41) wrote:

I never liked to use the word "empire" for the U.S. because people who hate free markets and trust government interventionism ("useful idiots," as Lenin called them) often describe it that way. But the characteristics of declining freedom, increasing decadence and moral turpitude, declining work ethic, and reliance on other nations are common to all past empires in decline, as well as the U.S.

Also, as a Christian, I can't help but note that as we turn away from God and towards sexual immorality and abortion, our economy starts to head the same direction as our morals (with a little bit of lead time to allow for repentance). It makes me wonder if any economic recovery can happen without us forsaking abortion and our embrace of fornication and homosexuality.

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#4) On March 03, 2009 at 10:45 AM, Bupp (27.99) wrote:


 do you think that the standard of living in ancient Rome is higher than it is today in Italy?

How about ancient Egypt vs. Egypt today?

Or even Persian countries vs. Middle Eastern countries today.

How about Aztec/Mayan vs. Mexico/South American countries today.


Political change and economic change are two very different things, progress does continue.


Unless you are worried that another civilization is going to come to the US and physically take your assets?


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#5) On March 03, 2009 at 11:08 AM, Hudarios (< 20) wrote:

Well said, indeed. I think certain aspects of the U.S. economy have been stuck in unsustainable one-way trends that will eventually reach critical thresholds. For instance, social programs (Social Security, Welfare, Medicare, Medicaid, etc.) have grown from 9% of the federal budget in 1950 to 58% in 2007, with no end in sight. This trend will eventually result in the entire economy being devoted to providing health care and retirement checks, or it will break down painfully and violently at some point. My money is on the latter.

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#6) On March 03, 2009 at 11:21 AM, FleaBagger (27.41) wrote:

First, if you were an ancient Aztec, and you and your children were killed by Spaniards, you would not see the benefit of the increased standard of living. Also, this website is primarily concerned with investment opportunities. Let's look at another example.

If you're in ancient Rome, let's say 235 A.D., and someone comes to you and says "These troubles will soon pass" and wants you to invest in his trading company that brings food from the farms to the city, luxuries from exotic locales to the cities, and pays in Roman currency. You do, with the magical insight that in 1,774 years, the people of Rome will have an unbelievably higher standard of living, making your investment safe.

But wait, the collapse of trade routes throughout the Empire and the hyperinflation of the currency devastates the other man's business, and your investment along with it. You and your descendants are still alive, but you will all become coloni, and later serfs, until finally a few of your descendants have cushy jobs in the bureacracy of Rome, Italy, a few of your descendants are on welfare, a few of your descendants recently gave up working to support their distant cousins in the first two categories, and a few of your descendants came to America a hundred or so years ago, where their great-grandchildren are now trying to decide whether or not to listen to Fleabagger (and Peter Schiff, and Eric Janszen, and Gary North, and Chris Barker, and Jim Rogers, and so forth) and look beyond the U.S. economy and invest only in things that justify their price, instead of blindly hoping that what has worked in the past (to varying degrees) will work forever on into the future.

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#7) On March 03, 2009 at 11:23 AM, FleaBagger (27.41) wrote:

Clarification: "the past" in my last sentence in the most recent comment refers to the recent past, i.e. 1850-2000.

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#8) On March 03, 2009 at 1:34 PM, Bupp (27.99) wrote:



The Wall Street Journal's daily human interest story featured a holiday season tale of the Fuggerei, a Roman Catholic housing compound for the poor in Germany. The price of admission for those lucky enough to get in is yearly rent of one Rhein guilder, which equals 88 euro cents or $1.23, plus daily prayers for the founder, Jakob Fugger and his descendants.

How does such a marvel exist? The settlement is funded by a charitable trust, and the rent remains unchanged since the trust was 1520.

Think about that. Can you think of another pool of capital that has lasted that long, let alone a commercial enterprise? The Fugger family is still well off, but no where near as rich as in Jakob Fugger's day.

The story does not give much detail about how the trust survived (a few nasty events like the German hyperinflation and World War II intervened), and gives a few tidbits about the last 200 or so years.

The core holding is forestry properties, which is both a renewable resource and inflation-hedged (admittedly with some volatility) and also owns some local real estate. The article does not indicate whether it holds securities.

Annual returns have been 0.5% to 2.0% over inflation
A fund manager who has quite a successful track record and manages money for families once told me that most investors fail to understand the importance of preserving capital and the value of keeping inflation. He said if you could consistently beat inflation by 2 or 3 percent, you would do far better than most understand. But too many investors chase greater returns, take on undue risk and in the long haul wind up worse off than if they had set more modest and attainable objectives (and note that this manager does seek and generally achieves higher returns because that is what customers want).

There is a second, behavioral issue with seeking higher returns and accepting the attendant risks. Let's say you do have a good year, or perhaps even a run of good years. You come to perceive this level of returns as sustainable, when it may be luck or an unusual set of investment conditions that will not persist. But human nature being what it is, most people would increase their expenditures in line with their new level of wealth, and are ill prepared for a reversal of fortune, as the last year has shown. Report this comment

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