Forty years seem like a long time.
As this new year begins, I wanted to look back over the last 40 years as a way of bringing perspective to what was happening around the world during these past four decades and specifically what happened in the stock market. I hope this historical perspective helps investors stay focused on the long-term versus the current disturbing headlines.
This post will review the two years – 1975 and 1985 which happened 40 and 30 years ago. Next week’s post will deal with the 2 years: 1995 and 2005 in the same format followed by the next week with a look at last year (2015).
World events from 1975 – Saigon falls. President Ford escapes not one but two assassination attempts with 17 days. Margaret Thatcher becomes the first woman leader of Britain’s conservative party. U.S. Congress bans oil exports. Andrei Sakharov (the great hero of Soviet resistance) wins the Nobel Peace Prize.
Saturday Night Live debuts in October. An American and the Soviet spacecraft link up in space and this event is memorialized on a beautiful 10 cent U.S. postage stamp.
Global population: 4.1 billion, fully half of whom live in extreme poverty, as defined.
U.S. Population: 216 million
U.S. real GDP: $5.49 trillion
S&P 500 year-end close: 90.19
S&P Earnings: $7.71
S& P Dividends: $3.73
As Princeton University Professor Angus Deaton notes in his book “The Great Escape”,
The rapid growth of average incomes, particularly in China and India, and particularly after 1975, did much to reduce extreme poverty in the world. In China most of all, but also in India, the escape of hundreds of millions from traditional and long-established poverty qualifies as the greatest escape of all.
World events from 1985 – Gorbachev comes to power in the Soviet Union and meets with President Reagan. The Internet domain name system is created. Windows 1.0 is published, and Lebanese Shiite Muslim extremists hijacked TWA Flight 847. The song of the year is “We are the World.”
In the greatest marketing catastrophe since the Edsel, the Coca-Cola Company produces New Coke. Subway shooter Bernhard Goetz is charged with murder in NYC. The Cosby Show is the top rated TV show. A first class U.S. postage stamp cost 22 cents. Maureen and Dan Crimmins graduated from Providence College.
Global population: 4.85 billion
U.S. Population: 238 million
U.S. real GDP: $7.71 trillion
S&P 500 year-end close: 211.28
S&P Earnings: $15.68
S&P Dividends: $8.20
The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole. This index provides a broad snapshot of the overall U.S. equity market; in fact, over 70% of all U.S. equity is tracked by the S&P 500. Earnings and Dividends listed above are per share of the S&P 500 index. GDP (Gross Domestic Production) is a monetary measure of the value of all final goods and services produced yearly.
We use the cost of a U.S. postage stamp as a crude representation of the increase in the cost of items that you need to purchase to maintain the same purchasing power through time.
Not a bad 10 years for investors as evidenced by the S&P growth and wait until next week’s post which reviews the years 1995 & 2005 in the same format. In the first decade, the S&P 500 index increased 134% from 90 to 211 while the U.S. postage stamp price increased 120%. The companies and the owners of these publicly traded companies were able to add value above the increase in the cost of living — which the equity markets have always historically done overtime.
Next week – we explore the next two decades by reviewing 1995 & 2005 and the events that occurred in the world as well as how the U.S. stock market performed. I’m hoping this perspective will reduce the anxiety and pessimism that seems to be omnipresent.
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