The past few years may seem especially tumultuous because of the crises that have occurred.
For example, in 2020, there was the COVID pandemic and oil prices turned negative for the first time in recorded history. In 2021, inflation in the USA rose to a level last seen in the early 1980s. In 2022, Russia invaded Ukraine. This year, there were the high-profile collapses of Silicon Valley Bank and First Republic Bank in the USA, and Credit Suisse in Europe; and just a few days ago, Israel was attacked by Hamas and Hezbollah militants.
But without downplaying the human tragedies, it’s worth noting that crises are common. Here’s a (partial!) list of major crises in every year stretching back to 1990 that I’ve borrowed and added to (the additions are in square brackets) from an old Morgan Housel article for The Motley Fool:
“[2023 (so far): Collapse of Silicon Valley Bank and First Republic Bank in the USA; firesale of Credit Suisse to UBS; Israel gets attacked by Hamas and Hezbollah militants
2022: Russia invades Ukraine
2021: Inflation in the USA rises to a level not seen since early 1980s
2020: COVID pandemic; oil prices turn negative for first time in history
2019: Australia bush fires; US president impeachment; first sign of COVID
2018: US-China trade war
2017: Bank of England hikes interest rates for first time in 10 years; UK inflation rises to five-year high
2016: Brexit; Italy banking system crises
2015: Euro currency crashes against the Swiss franc; Greece defaults on loan to European Central Bank
2014: Oil prices collapse
2013: Cyprus bank bailouts; US government shuts down; Thai uprising
2012: Speculation of Greek exit from Eurozone; Hurricane Sandy]
2011: Japan earthquake, Middle East uprising.
2010: European debt crisis; BP oil spill; flash crash.
2009: Global economy nears collapse.
2008: Oil spikes; Wall Street bailouts; Madoff scandal.
2007: Iraq war surge; beginning of financial crisis.
2006: North Korea tests nuclear weapon; Mumbai train bombings; Israel-Lebanon conflict.
2005: Hurricane Katrina; London terrorist attacks.
2004: Tsunami hits South Asia; Madrid train bombings.
2003: Iraq war; SARS panic.
2002: Post 9/11 fear; recession; WorldCom bankrupt; Bali bombings.
2001: 9/11 terrorist attacks; Afghanistan war; Enron bankrupt; Anthrax attacks.
2000: Dot-com bubble pops; presidential election snafu; USS Cole bombed.
1999: Y2K panic; NATO bombing of Yugoslavia.
1998: Russia defaults on debt; LTCM hedge fund meltdown; Clinton impeachment; Iraq bombing.
1997: Asian financial crisis.
1996: U.S. government shuts down; Olympic park bombing.
1995: U.S. government shuts down; Oklahoma City bombing; Kobe earthquake; Barings Bank collapse.
1994: Rwandan genocide; Mexican peso crisis; Northridge quake strikes Los Angeles; Orange County defaults.
1993: World Trade Center bombing.
1992: Los Angeles riots; Hurricane Andrew.
1991: Real estate downturn; Soviet Union breaks up.
1990: Persian Gulf war; oil spike; recession.”
Yet through it all, the MSCI World Index, a good proxy for global stocks, is up by more than 400% in price alone (in US dollar terms) from January 1990 to 9 October this year, as shown in the chart below.
Source: MSCI
To me, investing in stocks is ultimately the same as having faith in the long-term ingenuity of humanity. There are more than 8.0 billion individuals in the world right now, and the vast majority of people will wake up every morning wanting to improve the world and their own lot in life. This – the desire for progress – is ultimately what fuels the global economy and financial markets. Miscreants and Mother Nature will occasionally wreak havoc, but I have faith that humanity can fix these problems.
The trailing price-to-earnings (P/E) ratio of the MSCI World Index was roughly the same for the start and end points for the chart shown above. This means that the index’s rise over time was predominantly the result of the underlying earnings growth of its constituent-companies. This is a testament to how human ingenuity always finds a way and to how stocks do reflect this over the long run.
Note: An earlier version of this article was published at The Good Investors, a personal blog run by our friends.
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Disclosure: Ser Jing does not have an interest in any of the companies mentioned.
