“Things will wax and wane; grow and decline. The same is true for economies, markets and companies. There’s little more dangerous than extrapolating today’s events into the future...” – Howard Marks
One of our modern-day challenges is that technology has ushered in an era of instant communication and connectivity that seems to amplify awareness and sensitivity. There is never a shortage of negative news and today is no exception. Despite economic resilience and growth that has exceeded expectations, we may be distracted by new uncertainties: deleverage, higher rates and slower growth (ironically the goal of the central banks by raising rates!), to name a few.
Yet, we should be reminded that time changes all things. Consider the Millennials (born 1980 to 1994): For many years, they were said to be the first generation worse off financially than those before. As they have started to turn 43, purportedly the age when we ‘stop feeling young,’ they have outpaced previous generations. Millennial household income has surpassed that of prior generations at the same age: $9,000 more than the median GenX (1965 to 1979) household income and $10,000 more than the Boomers (1946 to 1964). Despite soaring real estate prices, Millennials are only slightly behind: 48 percent owned a home as 25-to-39-year-olds, compared with 50 percent of Boomers.1 As they enter their peak earning years, the future looks bright.
The narrative wasn’t much different for the generations prior. Just 30 years ago, there were “dire predictions” about the economic prospects of GenX. They entered the workforce into an economy recovering from a recession described as “the deepest since the Great Depression.” Unemployment soared to 11 percent in the early 1990s after interest rates were aggressively raised to fight inflation. Canada’s future economic prospects looked bleak. An editorial in 1995 referred to “Bankrupt Canada” as “an honourary member of the Third World.”2 And yet, to end the 1990s, Canada would end up taming its debt crisis to post strong GDP growth.
Likewise, many Boomers came into the job market in the 1970s, a period plagued by significant inflation, increasing unemployment (hence, stagflation) and low economic growth, as well as a stagnating stock market. Let’s not forget that in 1979, the front page of BusinessWeek magazine declared the “Death of Equities.”3 However, the Boomers have lived through one of the most fortuitous periods in investing history. If you were to have invested in the stock market in this seemingly bleak period, the total return today would be over 4,100 percent!4
Indeed, economic cycles come full circle and the rebound of the Millennials, and the generations before, serves as a reminder that time changes most things. We have no control over the stock market, the economy and other macroeconomic events; to a certain extent, many prove to be cyclical. Much of long-term investing success may rely on the ability to accept the inevitable cyclicality, by making appropriate adjustments along the way, rather than attempting to evade it.
As one market strategist reminds us: “A good bet in economics: the past wasn’t as good as you remember, the present isn’t as bad as you think, and the future will be better than you anticipate.”5
1 www.theatlantic.com/magazine/archive/2023/05/millennial-generation-financial-issues-income-homeowners/673485/; 2 www.reuters.com/article/us-crisis-timeline-idUSTRE7AK0FF20111121; 3 https://www.bloomberg.com/news/articles/2019-08-13/it-s-been-40-years-since-our-cover-story-declared-the-death-of-equities; 4 S&P/TSX Composite IndexTotal Returns, 8/31/1979 - 1,911.69; 7/31/2023 - 81,536.38; 5 https://collabfund.com/blog/everything-is-cyclical/