Investor Insight: Back to the Future?
Jarrett McKay - Nov 02, 2015
As an investor, wouldn’t it be great to travel back in time and alter the course of the future? Knowing what you know now, would you choose to do things differently?
Recall the movie “Back to the Future”, when a young man is sent back accidentally through time to 30 years in the past. It is easy to forget what the world looked like around 30 years ago. But, recall that in 1982, the economy was in the depths of a severe recession. Pessimism was rampant; the prevailing view was that the planet was overpopulated and would eventually run out of resources. Unemployment was around 11 percent in Canada and similar in the U.S.
By the summer of 1982, the predecessor of the TSX Composite Index had posted a loss of over 39 percent over the previous 12-month period. Inflation seemed out of control, and interest rates were extremely high.
And yet, this period of bleakness preceded one of the greatest bull markets in history. An equity investment of $1,000 in 1982 would have yielded over $25,000 today, an annualized return of over 10.3 percent!* Could this happen again?
Conditions today are markedly different, of course, as they are in every cycle. The business environment has undergone considerable change in over thirty years. The world seems to move at a higher speed, particularly in the information sector. Unlike in 1982, interest rates are at rock-bottom levels, and central bankers seem determined to maintain their fight to stimulate economic growth while keeping inflation under control.
Even so, history has shown that times of greatest uncertainty have provided some of the best opportunities for profitable investing. Investors who realize these opportunities take action and don’t sit on the sidelines.
What about your own portfolio? As individual investors, we need to assess each of our positions and reflect on our goals, needs and personal circumstances, as we seek opportunity.
Recovery has been a slow process, as reflected by the sluggish Canadian markets and especially due to the latest challenge of low oil and commodities prices. But there are many positive signs of improvement. Is the climb towards longer-term recovery just around the corner? A trip to the future will be the only way we will know for certain.
*Based on the S&P/TSX Composite Total Index Return (dividends reinvested) from 06/30/1982 to 06/30/2015.
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