Let's go back in time for forty years to 1975. 1975 was the year I graduated high school. The top ten singles in the month I graduated were, in order from number one, "Sister Golden Hair" by America, "Love Will Keep Us Together" by Captain and Tennille (they are now divorced), "When Will I Be Loved?" by Linda Ronstadt, "Bad Time" by Grand Funk, "Old Days" by Chicago, "I'm Not Lisa" by Jessi Colter (a sad song if I ever heard one), "Love Won't Let Me Wait" by Major Harris (I don't remember that song at all), "Cut The Cake" by Average White Band (now a racial epithet), "Wildfire" by Michael Murphy (another really sad song), and "Only Women" by Alice Cooper. (For a cool website that allows you to access all the top songs of the past, go here. I played "Love Won't Let Me Wait" and remembered it immediately.)
In 1975 M2 expanded by 12.1% and inflation was roaring. The rate of unemployment was 9%. The stock market had lost 47% of its value over the past two years and the economy was in a recession. Gerald Ford was King of the Socialist Democracy of Amerika and he had largely been elected based upon his promise to "WIN," or Whip Inflation Now. He didn't whip anything during his short reign. Amerika was still in the middle of the Cold War and I was still being taught by my government school teachers that I was likely to die in a nuclear war. Speaking of cold, I was also told by my government school teachers that if I did not die in a nuclear war with Russia I would inevitably die when the next ice age struck the world. Yes, believe it or not, we were taught at that time that global cooling was sure to be the next environmental disaster. There was a universal consensus among climate scientists that global cooling was going to kill us all and anyone who did not agree was clearly a denier.
But let's not dwell on the past. Let's look into our crystal ball and see what is going to happen over the next forty years, shall we? 1977 will bring us the "energy crisis" when oil prices will skyrocket and people will stand in line for hours just to purchase a couple of gallons of gasoline. The Three Mile Island nuclear power plant will have a fully contained leak of radioactive gas in 1979, spurning a nationwide anti-nuclear backlash. In 1981 King Ronald Reagan and the Pope of the time (I don't recall his name. It was probably Paul or John) were both shot by would be assassins. 1982 brings the depressed citizens of the SDA the worst economic recession the country had experienced in forty years. 1987 witnessed the October 19th meltdown of the stock market when stock values dropped by 22% in one day!
Other calamities that took place during the past four decades include Iraq War I, Iraq War II, the Watts riots (34 people were killed and over 3,400 were arrested), the "Asian Contagion" of 1997, Y2K, 9/11, oil prices soaring to over $100/barrel, hurricanes devastating the southeastern part of the SDA, the subprime credit crisis and, who can forget it, the Great Recession. In addition to these events, the stock market dropped by 19% from 1976-78, 27% from 1980-82, 34% in 1987, 20% in 1990, 19% in 1998, 49% from 2000-02 and 57% during the Great Recession of 2008-09.
All of the above events were well publicized and struck terror into the hearts of most of the citizens of the SDA. The fear generated by all of these terrible events, as well as dozens more that were predicted that never came to pass, caused millions of people to make the decision to never invest in the stock market. They believed their decision to stay out of the stock market to be a rational one, given what had happened and what would happen in the future. So, with perfect hindsight, I ask you a question. If you had $10,000 to invest on January 1, 1975, would you put it into a stock mutual fund or would you keep it in cash? Perhaps you would make the highly irrational decision to put it into a stock mutual fund and then endeavor to predict each time the market is about to crash and get out just in time, putting your money back in when the market reaches the bottom. Only fools believe it is possible to predict the future and a fool and his money are soon parted. It is your call. It is 1975 and you can either stay out of the market or get in it and stay there until today. Which course of action would you take?
I received an annual report from one of the stock mutual funds that I own last week. It had a two-page graph displaying the total return of the fund since 1975. If I had invested $10,000 into the fund on January 1, 1975 and let it sit there for the next forty years, doing nothing but watch it go up and down, it would be worth a little shy of $2 million today, an average annual total return of approximately 13.5%. Enough said.