Sunrise on Anzac Day, whilst the ceremonies are taking place, makes thinking about what it must have been like in the various wars — in particular the world wars — a lot easier than any other time of the year. And although I spent two years in the military (and basic training was no picnic), we can’t possibly imagine what these people went through in order to achieve what we enjoy today.
Unless one has actually experienced an extreme level of hardship, it’s impossible to understand what it’s like. Nobody can explain it – not even those who went through it. All we can do is be very grateful to those who must have gone through a lot to protect our way of life.
Thinking about it a little further made me wonder what our ‘way of life’ meant – and that it could be very different depending on the person. But for investors, what are the most important aspects of our way of life that the diggers in the two world wars were protecting?
In my view, there are two important principles – democracy and capitalism. From an investor’s perspective, the protection of these principles has been the cornerstones of the unprecedented wealth that has been created over the past 75 years since WWII. With the human optimism that they demonstrated through those awful times, they protected and showed what costs are sometimes worth paying to create the climate for prosperity.
These returns are generated directly from capitalism, and the cost of capital together with human optimism. But they wouldn’t be possible without the support of democracy to ensure that they were not only allowed to thrive, but also that the healthy contest between capital and labour would keep economies balanced. Warren Buffett summed up the investment benefits of the markets in his lifetime as he compared investing in the markets to gold. Buffett revealed that $US10,000 invested in an S&P 500 index when he began investing would be worth $US51 million today.
However, according to Business Insider, $US10,000 invested in gold would be worth approximately $US400,000.
But to receive these returns, you would have needed to tough it out across eight major corrections at least. There will be more challenges to our way of life and the way we invest, and each will look different. For example:
- The 1987 crash had many causes
- The Tech Wreck was all about massively inflated prices due to a perception that the internet would change life and investing forever
- The GFC was too much leverage and lack of liquidity, mispricing risk.
The next one will look different – but it will come.
The ANZACs sacrificed so that we could use capitalist principles, and so that we could express our views. Maybe I take this too literally when I talk to politicians, which I do at every opportunity. I do this both to demonstrate that I appreciate democracy, and also to give them a view. I tell them why I will vote for them, and why not. I don’t understand why people who have the opportunity to vote don’t do it with vigour. Ironically, after Nelson Mandela’s long fight for democracy in South Africa, the prediction is that less than half of the eligible voters will vote in the 2019 election.
The time to take advantage of democracy most is when something is not going the way you want it to go.
In the same way, we have this tremendous opportunity to participate in capitalism, and there’s no better way than through the capital markets. The stock market, bond market and property markets around the world are all well regulated, transparent, and effective at pricing assets.
Prices will once again fall. When they do, the last thing to do is lose confidence and not participate. That’s exactly the time to be more involved.
Difficult times impact participants in very different ways. Some ANZACs will never speak about it, others will. The pain is too severe, and they don’t want to relive it. Many that came out of the Great Depression have never re-entered the markets – to their great detriment. It’s during or after these traumatic events that we would do well to remind ourselves and those closest to us that the core principles for which the ANZACs sacrificed are always present ,and will at some point be demonstrated again.
As and when prices fall again, remember Buffett’s advice: “Many of these headwinds are transitory, so keep investing with confidence” — and the ANZACs’ sacrifice makes it all possible.