By |2021-04-16T15:26:37-04:00March 10th, 2021|Blog, Great Investors Series|

“Humanity has reached not just the passing of a particular period of post-war history, but the end of history as such: That is, the end-point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”

                          The End of History and the Last Man, by Francis Fukayama

In last month’s article, we had some fun with the recent scandal brought on by trading in GameStop stock. This month, we look back on one of the most awful years in American history, and how far we have come since.

The End Of History

Thirty years ago, author Francis Fukayama authored a book that serves as a wonderfully humorous example of the hubris and self-absorption to which human nature is sometimes prone.

The End of History and the Last Man was written in 1992, right in the middle of a Golden Age in American history. Our economy was prosperous, and our equity market was directly in the middle of one of the great bull markets in stocks of all time, which started in 1982 and was still going strong. Politically, the Cold War had been won, and Ronald Reagan had accomplished his primary objective of defeating the Soviet Union. The Berlin Wall had fallen, while Western-style democracy and capitalism were taking root all over the world.

Naturally, human nature did a victory lap, and we began to believe that a wonderful new era was dawning. Humankind had become fully evolved: all that there is to be learned had been learned, and we had conquered our biggest problems.

It didn’t take long for us to learn the folly of our hubris. History does not, in fact, ever end. A few years later, at the turn of the millennium, the world experienced one of the worst recessions and stock market crashes ever, accompanied by a rash of horribly corrupt corporate scandals. Soon after that came the worst terrorist attack on U.S. soil in history, as well as the initiation of a multi-decade war in the Middle East.

History had not ended by any stretch of the imagination.

Recency Bias

There is a human behavior called “Recency Bias,” which means that we have a very limited ability to see the similarities in our current situation and events that have happened in the past. We always think that the current set of circumstances has never happened before, when in reality, it just hasn’t happened to us before. Recency Bias makes us feel like we can’t make sense of what is happening because we can’t call to mind any past experience to draw from to understand how a situation could end.

When things are going badly, our brains are wired to make us pessimistic. When things are going well, like they were back in 1992, we begin to think that we’re entitled to have things keep going well, and that history is over: we have reached a new era of permanent peace, happiness, and prosperity.

From an investing perspective, lots of people sold out of their equity holdings at some point during 2020, either because they were afraid of the impact of the pandemic or because they were concerned about the presidential election and volatile political climate in America. Many of those people didn’t do that to try to time the market, but because they firmly believed that the events of 2020 were so fundamentally different than any other time in American history, and that our nation had been fundamentally changed in such a terrible way that normal will never return. Some people still believe that now.

1968

I recently read an article about another challenging year in our history that offered some perspective and a reminder that history does not ever end. Difficult times are a regular feature of the human experience.  I didn’t know the year before my birth was this bad, but here is the story of 1968, as told in the words of author Nick Murray:

It, too, saw a presidential election cycle that tore the country apart. Oddly, it was also a plague year: a new influenza virus, H3N2—the “Hong Kong flu”—killed some 100,000 people in an America whose population in 1968 barely exceeded 200 million. Moreover, 1968 was a year of profound economic crisis in this country—one that signaled both the end of the post-WWII economic boom and the great bull market in stocks that was fueled by that boom.

Disaster set in almost immediately. During the Lunar New Year, or Tet (January 30–31), Viet Cong and North Vietnamese forces launched a coordinated series of attacks on the major cities in South Vietnam. The Tet offensive took the U.S. and its allies completely by surprise. Until that time, the narrative had been that the communist forces held the countryside, but that our side rendered the cities impregnable.

The irony of Tet was that the allies ultimately beat back the attacks, inflicting very heavy casualties. But the damage was done, and media coverage brought home the full horrors of an already unpopular war. The iconic broadcaster Walter Cronkite now proclaimed that America was “mired in stalemate.” Whereupon President Lyndon Johnson was reported to have said, “If I’ve lost Cronkite, I’ve lost middle America.” 

In March, President Johnson—who had won the presidency in his own right in the 1964 landslide—managed to win the Democratic primary in New Hampshire by a mere 230 votes against a peace candidate of his own party, Minnesota’s Senator Eugene McCarthy. Four days later, New York Senator Robert Kennedy announced that he too would seek the Democratic nomination. (Though it wasn’t revealed for another year, on that same day, U.S. ground troops massacred 500 Vietnamese civilians in the village of My Lai in South Vietnam.) On Sunday night, March 31st, Johnson announced on television that he would not seek re-election.

Also in March, the worst economic crisis since the Great Depression burst into flame. A chronic U.S. balance of payments deficit, exacerbated by an increase in European imports and a surge in American tourists spending their money in other countries, caused a rise in the number of dollars heading overseas. The world, quite reasonably, began to lose faith in the dollar’s gold backing.

Foreigners, panicked by the weakening dollar, sold it and bought gold, worsening inflation. This was the beginning of the end of the Bretton Woods monetary agreement, which in 1944 had enshrined the dollar as the global currency. The U.S. finally abandoned the gold standard in 1971; thereafter, inflation would rage out of control for the following decade.

I must pause here – just before the genuine chaos begins – to wonder aloud if you who didn’t live it as adults can imagine the extent to which this first calendar quarter of 1968 shook this country to its foundation. America’s whole idea of itself – as the world’s sole economic superpower and the bulwark of defense against hegemonic communism – had shattered like glass. We were coming to wonder if the country was not losing its soul in those fetid jungles half a world away.

Three days after LBJ’s announcement, on Wednesday evening, April 3rd, Dr. Martin Luther King, Jr. foretold his death. “I’ve seen the Promised Land,” he said. “I may not get there with you. But I want you to know that we, as a people, will get to the Promised Land.” By nightfall of the following day, he was dead—yet another victim of an assassin’s bullet, as JFK had been in 1963, and as Malcolm X had been in 1965. Literally, dozens of American cities exploded in rioting and destruction.

In the third week of April, student protesters occupied several buildings on Columbia University’s campus and shut down the school. Teachers refused to teach on campus; the university’s administration did nothing. By early May, mass student demonstrations had broken out around the world. On “Bloody Sunday,” May 6th, students and police clashed in Paris’s Latin Quarter, injuring hundreds. After which, millions of French workers began striking in sympathy. President de Gaulle dissolved the National Assembly, called for immediate elections, and threatened military intervention.

Just after midnight on June 5th, New York Senator Robert Kennedy—brother of the slain president and the hope of tens of millions of Americans—was shot in the head after having won the California Democratic primary. A whole nation kept vigil in utter horror throughout that day and night; Kennedy died 26 hours after being shot. He was 42 years old. 

In late August, 1968, as the Democrats convened in Chicago to nominate Vice President Hubert Humphrey to run against Richard Nixon, thousands of students, antiwar activists, and other demonstrators poured into the city. They were met with a violent police response which continued night after night—all captured without surcease on national television.

On October 16th, after being awarded gold and bronze medals respectively in the 200-meter sprint event at the Mexico City Summer Olympics, Tommie Smith and John Carlos bowed their heads and raised black-gloved fists in a salute to the Black Power movement during the playing of The Star-Spangled Banner. They were immediately thrown off the U.S. Olympic team, but were seen as heroes in the Black community.

On November 5th, Richard Nixon and Spiro Agnew were elected President and Vice President of the United States, respectively, by a razor-thin popular vote margin (though a solid victory in the Electoral College). They formed the ticket with the most ignominious ending in American history. In October 1973, Agnew pleaded nolo contendere to one count of felony tax evasion and resigned his office. In August 1974, Nixon resigned to avoid inevitable impeachment.

On November 29th, the nation’s economic peril finally caught up with the great post-WWII bull market; the S&P 500 topped out at 108.4, and the market went down 36 percent over the following 18 months. The Nifty Fifty mania would carry the market back up to an illusory new high of 120.2 on January 11th, 1973, even as the country palpably began running out of oil. But from that peak, the market declined 48 percent over the next 20-plus months; at the time, it was the greatest peak-to-trough decline since the 1929-32 event. On October 3rd, 1974, it finally bottomed at 62.3. From the 1968 top to the 1974 bottom, the average common stock in the United States had lost (in real, inflation-adjusted terms) about 70 percent of its value.

What Next?

We learned once again in 2020 that history is definitely not over. In fact, it has a way of repeating itself. If you look hard enough at history, you will find lots of years like 2020, or like 1968, in which mankind had to endure difficulties. History is filled with pandemics, political upheaval, war, economic depressions, natural disasters, and a variety of other hardships.

History also demonstrates, quite clearly, the resilience of mankind and our ability to endure hard times and emerge stronger, smarter, and better from them. As an example, consider what has happened in America since the horrible year of 1968, and how far we have come:


In 1970

Construction tops out, and the first tenants move into One World Trade Center (the “North Tower”) in New York City. At that moment, it’s the tallest building in the world; it will cease to exist 31 years later. The first Earth Day is observed. The United States and its South Vietnamese allies invade Cambodia; National Guard troops fire on an anti-war demonstration at Kent State University in Ohio, killing four students and wounding nine. Paul McCartney announces that he is leaving the Beatles. Jimi Hendrix and Janis Joplin both die at age 27. An explosion aboard the Apollo 13 spacecraft on its way to the moon imperils the lives of three astronauts; four days later – in a triumph of grit, ingenuity, and sheer piloting skill – they return safely to earth.

  • Global population: 3.71 billion, fully half of whom live in extreme poverty, as defined
  • U.S. population: 203 million
  • U.S. real GDP per capita: $23,944
  • S&P 500 year-end close: 92.15
  • Earnings: $5.51
  • Dividend: $3.91

In 2020

A novel coronavirus sets off a global public health crisis on a scale unseen since the 1918 flu event. Lockdowns aimed at stemming the spread of the virus also cause a savage and all but instantaneous recession; unemployment soars. The S&P 500 declines 34 percent in 33 days, its fastest such decline ever. Massive monetary and fiscal intervention reverses the decline, such that the S&P 500 regains its previous peak within six months. The development of vaccines takes place in record time; they are going into broad distribution as the year turns. All three major stock indexes end the year at record levels, as does U.S. total household net worth (estimated by J.P. Morgan Asset Management to exceed $128 trillion).

  • Global population: 7.8 billion, less than 10 percent of whom live in extreme poverty, and half of whom are already middle class
  • U.S. population: 330.8 million
  • U.S. real per capita GDP: $56,400
  • S&P 500 year-end close: 3,756.07
  • Earnings: $136 (estimate), depressed by the pandemic from $162 in 2019
  • Dividend: $58.28 (actual), its ninth straight annual record

History really does repeat itself.

While it’s easy to think that what we’ve experienced over the course of the past year is a first, we’re constantly reminded that that’s just not the case. Throughout history, we’ve faced adversity, the rollercoaster of the market, and yes, even a pandemic or two. We’ve survived, thrived, and made it through the other side. We can’t change the past, but we can learn from it and let it inform our future.

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By |2021-04-16T15:26:37-04:00March 10th, 2021|Blog, Great Investors Series|

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