Investment Decisions and the End of the World (Or America at Least)

August 01, 2022
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You only bet on the end of the world once… So the saying goes.

Some people, though, are happy to bet on it a few times throughout their lifetime. They build their financial decisions and investment portfolios around financial pessimism.

They get in the market. They get out of the market. Rinse, repeat.

Some of us are always up for a bit of doom and gloom. If you fit that category, it’s not all your fault.

Oftentimes we get convinced by a friend, or a talking head, or a book written by a Ph.D.

Books like this come out ever so often. Many times, with some of the same recycled arguments.

Nick Murray, the respected financial advisor for financial advisors, pointed this out in a 2016 article for Financial Advisor. He writes, 

Every few years, both for long-term perspective and for sheer entertainment value, the well-rounded advisor should tuck into a 20-year-old doom-and-gloom bestseller…

…my very favorite – for brevity, for clarity, and because you can turn on Fox News right now and see an ad for gold that makes the exact same argument, word for word – is Bankruptcy 1995: The Coming Collapse of America and How to Stop It by one Harry E. Figgie, Jr. and Gerald J. Swanson, Ph.D. (1992)…

The book’s argument, synopsized: the 1992 federal deficit, at $400 billion, and the national debt, at $4 trillion, were growing at hockey-stick exponents. On current trends, interest on the debt would consume all personal and corporate tax revenues in 1997. But even before that, the Fed would have to start printing money to buy increasing amounts of the federal debt, attempting to inflate the government’s way out of the deepening abyss.

Result: the world would flee Treasury debt, a firestorm of hyperinflation would then break out, and a cataclysmic depression unlike anything ever experienced would come upon the land. It would be The End of Economic Life in the United States as We Have Known it.1

Sound familiar? Sounds like a book that could come out this year. Old arguments die hard.

To be fair, at some point the author’s will be right. Empires come and go. And when they go, they can go due to bankruptcy.

Bubbles also pop…We’ve seen some big ones explode since that book was written.

Debt is a serious problem…It’s breathtakingly higher now than it was then.

Inflation sucks…We’ve had quite a dose of it lately.

Go down the list. The kinds of warnings authors like this give matter.

If Murray’s summary is correct, though, investors in American companies should point out this obvious fact:

The authors were wrong.

Don’t get me wrong, though (!), I’m not saying the principles they asserted won’t ever be right. (This is why one recently revisited this book and called the author’s “early”).2

I’m just saying, Figgie and Swanson’s predictions were wrong. Full stop.

In 1995 the S&P 500 was up to 615, which as Murray shows, was a few hundred points higher than around the time the book was headed to publish in ’91-’92. That’s not too bad of a return for a collapsed America.

And guess what? Even in the worst of the Great Financial Crisis of 2008-2009, the S&P 500 was in the 700s. A horrible return from the 90s, but still up.

During the ugly COVID crash a few years ago, the index was around 2500.

Today, at the time of this writing in mid-July, after a very challenging first half of the year, it is hovering around 4000.

Also, America is still here.

Has it got its problems? Certainly.

Similar ones? Definitely.

Still. There is a significant lesson here: Don’t let books or you fill-in-the-blank about the end the world dictate your investment decisions.

Prudence is careful, but rarely panics.

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Source:

1. Nick Murray, “A Catastrophist Golden Oldie”, July 5, 2016. Accessed online: https://www.fa-mag.com/news/a-catastrophist-golden-oldie-27809.html?section=40

2. Accessed online: https://www.advisorperspectives.com/commentaries/2022/06/10/a-trillion-here-a-trillion-there