Invest Like It’s 1791
The old Wall Street wisdom says that “this time it’s different” are the four most expensive words in the English language.
It seems like it’s a lesson that gets relearned at least once in a generation.
And whenever that happens, it’s usually painful for those involved…
Not long ago, Global Financial Data released a market index that tracks U.S. stocks all the way back to 1791. It’s pretty remarkable:
Source: Global Financial Data
The chart above shows the GFD-100 index from 1791 to today.
At a glance, it’s hard to miss the overall trend in the U.S. market over that 229-year span. In the long run, the stock market has moved higher in a practically linear fashion. And it’s stayed pretty consistent up until today, too.
Sure, there have been some hiccups along the way…
It’s hard to tell from the chart, but many of those hiccups felt more like earth-shaking tremors.
Still, at the end of the day, even the most painful crashes look downright trivial in the context of the market’s longer-term trend.
These days, you can’t turn on CNBC or open The Wall Street Journal without hearing about how markets are different now than they were “back then.” High-frequency trading makes up the majority of volume on the major exchanges. ETFs and other passive investing vehicles are taking over traditional active investors. Extraordinarily low interest rates are tamping down returns. The list goes on.
It’s true, there have been some big changes to the stock market.
For example, the NYSE used to be closed on Wednesdays in the 1960s so that staff could catch up on paperwork. And stock prices were quoted in fractions up until 2001.
And while it’s true that markets are changing rapidly right now, it’s also true that they were changing just as rapidly over the course of the 229 years in the chart above.
Fact is, it’s always been hard to trade the right edge of the chart.
Investing is never easy.
That’s especially true in 2020 as folks try to figure out how to trade around this pandemic.
If the last 229 years of price action have taught us anything, it’s that if your time horizon is long enough, even the most challenging market conditions are no match for your portfolio.
Meanwhile, in the much shorter term, the data still supports buying what’s working: namely, high-performing stocks in the tech sector.
For instance, Nvidia (NASDAQ: NVDA), Amazon.com (NASDAQ: AMZN)and Microsoft (NASDAQ: MSFT), the three names we looked at as turnaround trades back in early April, are up 22% on average since then.
That’s double the return of the S&P 500 during its bounce-back.
Big Tech continues to look primed to outperform in the near term.
And longer term, the trend is still your friend.
Jonas Elmerraji, CMT