Tuesday, December 31, 2019
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There will always be something
But it’s this uncertainty that serves as the price of admission into financial markets. As Morning Brief readers know, uncertainty characterizes the risk investors take when they go long stocks. It’s that uncertainty that commands a premium, which is why the rewards of investing in stocks tend to be higher than risk-free assets.
And when we say there’s “always” something, we mean “always” very literally.
Consider the chart below from Bank of America Global Research’s December fund manager survey. It tracks the various “biggest tail risks” identified by BofA’s fund manager clients over the years.
If you’ve been following the news, you might remember the euro debt crisis that defined the beginning of the decade. It sure seems like a long time ago. And soon enough, this trade war the U.S. is engaged in with China will be a thing of the past, as something else comes up as a concern for the investor class.
The truth is that history is riddled with some truly worrisome events. And yet the stock market has managed to come out of the other end just fine. Consider how Warren Buffett sees the stock market.
“Over the long term, the stock market news will be good,” Warren Buffett said in a 2008 op-ed during the financial crisis. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
On Jan. 4, 2010, the Dow kicked off the decade by opening at 10,430. Through Dec. 30, 2019, it was just shy of 29,000.
What to watch today
December consumer confidence (128.2 expected vs. 125.5 in November)
Ex-Nissan boss Ghosn flees ‘rigged’ Japan for Lebanon [Yahoo Finance]
World’s richest gain $1.2 trillion in 2019 [Yahoo Finance]