by Ron Bare
Beginning to see something with a new perspective changes everything. Many years ago, when you first saw your now-spouse as more than just a friend, it changed everything, didn’t it? When you began to see your job as a calling, it changed everything, didn’t it? And when you started to see your finances as a gift from the Lord and something to be stewarded for His glory, it changed everything, didn’t it?
We believe this same principle can be true with the stock market. If you can start to see the stock market in a new light, it just might change everything. What if instead of seeing your investment as tied to an obscure thing that we have named “the stock market,” you began to see your investment tied to real companies? And not just any companies, but some of the best in the world.
Do you think that would change things? I know it has for me.
All of a sudden instead of investing in an unpredictable, volatile stock market, you become a shareholder in some of the best businesses in the world. When you invest your assets into these companies, you become a part owner and share in their profit. You get to be a part of what each of these companies is doing and how they are impacting the world for the better.
We believe there are a few reasons that this mindset shift is critical.
First, it’s a whole lot easier to trust businesses than the stock market, right? Each business you invest in through the stock market has a business plan, financial advisors, CFO’s, CEO’s, Boards, and marketing professionals to help them be successful. They strive to make the best decision for themselves and their customers. If they start to lose money because of the decisions they’re making, they’ll change what they’re doing. And when these businesses do well, so does the stock market, because they are the stock market.
But what about when crises hit? You know it as well as I do – they’re inevitable. Yet as we look back through time through various crises – COVID, crises in the Middle East, or others, we see a trend in the market values of publicly traded companies. Not only do these companies survive, they often come out stronger on the other side of the crisis. And historically, if you stayed invested over a long period of time, your overall return from these companies far outpaces the rate of inflation.
Nick Murray, a well-known financial advisor, writes about the reality of this trend. Murray writes about the staggering difference between the increase in the dividend (profit distributions) of the S&P 500 (500 of the largest US companies) and the increase in inflation in the 50 years between 1972 and 2022. The dividend increased 21 times while inflation increased 7 times. In addition, The research indicates that dividend increases tend to outpace the rate of inflation. In addition, the pattern is that the increase in the stock market almost always has a positive correlation with earnings growth. (Murray).
Finally, a quick disclaimer. Many people spend a lot time trying to predict the short term direction of our economy and stock market. The truth is, nobody can promise you anything about what the economy or the stock market may do in the short term. When you invest in the stock market, there are risks involved. That’s just the reality of it. But as we follow the trends of history, we continually see the increases in the value of these companies far outpace inflation and we see the market value of these companies following earnings.
So why not reframe our perspective? Rather than thinking we’re investing in an unpredictable stock market, let’s change our mindset and understand that we are investing in some of the greatest companies in the world. Many of these companies are making a positive difference through the products and services they provide, and when you step into long-term investment with them, you get to be a part of something greater than yourself!
Murray, Nick. Nick Murray Interactive, vol. 23, no. 7, July 2023, pp. 1–2.