Investment Outlook: Second-Quarter 2019 - Back to the Future

Financial press and business channels are always featuring people who attempt to forecast the future.  Of course, with no surprise, these forecasts are often wrong.  In the past week, I read columns from two of my favorite writers, Bob Greene and Andy Kessler, about how wrong many long-term predictions have been.

Greene’s column, about the 1964-65 World’s Fair brought back memories from age eleven, when my parents rented a trailer and all six of us got in our Chevy Impala, dragging the trailer, and headed to New Jersey.  After an eye-opening trip on the subways, we arrived at the 1964-65 World’s Fair in Flushing Meadows, Queens, New York.  His column, titled “The Extinct Companies That Sponsored the Future,” names many long-gone sponsors and advertisers of this World’s Fair, including A&P Supermarkets, Trans World Airlines, Ansco Film and Eastern Airlines. 

Kessler’s article cites a 1989 book called “Megamistakes” by Baruch College professor Steven Schnaars, exploring similar errant forecasts including predictions like manned lunar bases by 1977 and autonomous vehicles by 1979. 

Another futuristic and memorable mid-60’s family journey was to a NASA exhibit in Cleveland featuring hydrogen fuel cells, at the time thought to be the energy of the future—today they only exist when highly subsidized by the tax payer.  One of my favorite missed forecasts was a cover story on a 1978 Newsweek about the coming Ice Age!   

Participants in the stock market are always looking ahead.  Some like to trade based upon near-term current events, whereas we prefer to purchase stocks we intend to own for the next five years or longer.  We are optimists regarding the innovation of business people in America, as our legal system protects and rewards the inventor and the investor, making it easy to start new companies.  While optimistic by nature, we must remain skeptical of the many forecasts we encounter daily.  We view our skepticism not as being pessimistic, but rather as being rational.  In our analysis process, we look for weak spots in a company’s position and challenge each other on what could derail a company’s growth.  Another focus is correctly evaluating where things stand today, without trying to predict what may happen next.  For example, the S&P 500 is selling just a bit above its average P/E ratio over the last twenty years.  U.S. consumers and businesses are in good financial shape; whereas, governments around the world tend to carry too much debt.  We remain cautious of recent new issues very-high valuations, often selling at fifty-times revenues while most are actually losing money. 

Generally, we have a positive view of the stock market, but we never expect everything to go 100% right. We remain skeptical of many long-term forecasts today.  Fear of Chinese domination reminds us of past fears about Japan’s economic strength, which went awry.  We agree with Bob Greene’s conclusion: “The future always arrives on time.  Nothing is guaranteed, including who among us will be here to greet it and what will stock its shelves.”