For any investor with a reasonably long-time horizon, attempting to ignore whatever the market focuses on at any given point is the sensible (and most lucrative) approach. Unfortunately, this can be close to impossible for three reasons:
- It is hard to ignore something when everyone else is paying attention to it.
- We are human and thereby exposed to the same perception biases as everyone else. We must work exceptionally hard to behave differently.
- Sometimes, something will matter to financial markets in a material way and ignoring it won’t look smart.
– Joe Wiggins, Head of Investment Research, St. James’s Place
Last month, we conducted our annual review of the equity market over the last 62 years. This month, we take a look at one factor that really does matter to economic growth: worker productivity.
Save the Date for April 30
We have been publishing our Great Investors article series for over 10 years now, and it has consistently been our most popular content every year. We thank our loyal readers and truly appreciate your comments and feedback over the years.
As you know, we have changed the format of our Great Investors series from a monthly written commentary to a quarterly webinar. We will deliver a brief talk summarizing our outlook on current events, delivered in the same style you have come to appreciate in our monthly article series. We will then have ample time for Q&A and discussion to address any additional questions you may have.
Our next webinar will be held on Wednesday, April 30th, and will be available via online live stream and in person for those who can attend. Please save the date; more details will be available soon!
A Productivity Breakout
Given the tidal wave of chaos and uncertainty engulfing the economy and capital markets these days, including bad inflation numbers, almost daily new and different tariff proposals, and interest rate uncertainty, it is particularly difficult to tune out the noise of media hype and focus on the things that really matter. It is impossible to know how these multiple dramas will play out, and even if you could, most of them aren’t likely to matter much to a long-term investor anyway.
One thing that we can clearly say does matter is the long-term structural health of our capitalist system and its ability to grow and innovate. The pulse of this system is worker productivity.
Productivity is, in every sense, the key to long-term economic growth because it measures the economy’s ability to consistently get more done by using fewer resources and less manpower. Increased worker productivity allows employers to raise wages without triggering inflation, which lays the foundation for economic growth.
It’s no mystery that businesses today use the boom in microchip technology and artificial intelligence to do this. As a result, productivity has risen sharply over the last few years. As outlined in a recent Wall Street Journal article, productivity in the 3rd quarter of 2024 was up a full 2% over the same period a year before, marking the 5th straight quarter in a row with at least a 2% pickup. For context, these quarterly gains are better than any experienced during the 5 years prior to the pandemic. Overall productivity growth has risen from –1.5% in 2022 to +1.6% in 2023 and then +2.4% in 2024.
Productivity growth is making sharp gains these days, which is one key reason why the U.S. is growing so strongly compared to other developed economies.
Helping Those You Care About
Over the last few years, the patience of all long-term investors has been severely tested. As must happen every few years, we were basically required to do one big thing: reject the idea that “this time it’s different” and hew to the belief that “this too shall pass.” We must not doubt that we’ll get many additional opportunities to practice patience and discipline in the years to come.
Successful investing, while always fundamentally simple, will never be easy. You may have a family member, colleague, or friend who perhaps did not fare as well and who you feel might have benefited from the sort of advice you were receiving. Should that be the case, we would certainly appreciate your introducing us to them. We very much enjoy working with you and would welcome the opportunity to offer the same level of planning and service to people whom you care about.
You are welcome to bring a friend or family member to our event on April 30th or share the recording of our discussion that night.