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« Gold medal sponsorship | Main | When you don't know what to do »
Wednesday
Aug222012

Has anyone noticed the good news?

What is this historic stock market chart?

It’s looks like a nice ride for any investor. It moves higher over time but not in a straight line. It does so with the usual higher tops and higher bottoms. It covers a period of several years.

What is it? It’s the Dow Jones Industrial Average, the traditional proxy for the US market. This was one of the best performances in US market history. Over the 40 months covered by this chart, it doubled.

When did this happen?

It was the last three and a half years. In March 2009, the DJI stood at 6,595. When I made this chart yesterday, it closed at 13,275. Up 101%.

The chart above is a section of the one below. It’s easy to see which bit I used.

Here is another historic fact. If you add up the earnings of the 500 firms in the S&P 500 and divide it by the number of shares they have on issue, the earnings per share is the highest it has ever been. In other words, on average, each share is now more valuable than at any time in history. That number has also been rising for three-and-a-half years.

What’s the point?

What part of the chart are you focusing on? The events of 2008, or what’s been going on for the last three and half years?

It's happening in the real economy too. Here’s two last facts. One is regularly pointed out by Bill McBride (at calculatedriskblog.com). The percentage of the US population that is fully employed has been growing non-stop for 30 months. It’s been a persistent trend. The second is that US growth may be slow, but it hasn’t stopped growing for 12 quarters.

No one seems to mention these facts. A standard piece in this week’s US news was headed “Poor Returns Make Retirees Think Again On Stocks”. Why? In the US at least, investors, businesses and employees have been rebuilding their wealth almost non-stop for the last three-and-a-half years. It’s a similar story in many countries – Australia, Canada, even some parts of Europe, not to mention the BRICs.

Is it just me, or has the news gotten into a very negative headspace.

Here’s why it matters.

If you are making serious decisions about your business, you need a realistic perspective. Everything I have said above could go in the opposite direction tomorrow. A new higher bottom may be just around the corner.  That can happen. It often does.

At the same time, I have no idea whether it will and neither do you. That’s what business risk is about. The current reality is not what happened five years ago. It’s what’s happening now and how we adapt to it.

The business environment is always shifting. There’s not only bad news out there. What parts of your business are exposed to the positive side of the current reality? What are you doing to take advantage of it? Are you focusing resources on activities that have the best prospects?

In many countries – not just the US, and not all of them either, but in most – these things are growing: the economy, asset values, earnings and employment. They have been for some time. The business cycle is not dead.

We all know what happened five years ago. But what’s happening in your market right now. And what are you doing about it?

 

Reader Comments (6)

Good point. I ran the number on the Australian stock market. Not quite as sexy. About 40% up over thee or so years. But when I added back dividends by looking at the accumulation index, Oz is up more than 70%.

August 22, 2012 | Unregistered CommenterRon Mayfield

This has all happened despite what's been going on in Europe. Imagine what might happen if they sorted it out. No ones thinking about that.

August 22, 2012 | Unregistered CommenterAbby Lapont

Hey Abby, no one is thinking about that because they probably won't sort it out.

August 22, 2012 | Unregistered CommenterRobbie Newbridge

I seem to remember people saying that about Argentina before the Brady bonds were put in place in the 80s. That's the same idea as restructuring a lot of Euorpe's debt. It's a bigger deal this time, but then again the impact could be bigger. Unlike you, I don't know.

August 22, 2012 | Unregistered CommenterAbby Lapont

No news is good news. It's like the Aussie banks. They manage to get through the crisis relatively unscathed, then everyone complains when they make a profit. Would all us taxpayers rather we have to bail them out like the British, the Americans, the Irish, the Spanish, the Italians, the Greeks..... Need I go on. Thanks for the post. I found it refreshing and uplifting.

August 22, 2012 | Unregistered CommenterAaron Chambertin

Alan, you'll never get a job on a newspaper.

August 22, 2012 | Unregistered CommenterAaron Chambertin

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