Focusing on the thousands of great companies that comprise the markets - and provide us with the goods and services we need and use everyday - has a calming effect and is reflective of the reality of the markets underlying the market volatility.
How often do you hear some variation of: “The markets scare me” or “The markets aren't looking very good.” When we use the word ‘markets’ in this context, we often forget the reality underlying the term: ‘markets’ is a stand-in for the combined value of the greatest companies in the world. Saying that the markets scare me is like saying that investing in companies like Adidas, Johnson & Johnson, Honda and Apple scares me.
Once a term distances us from the underlying reality, there is a greater chance of our emotions driving our decisions. When we forget that the value of the markets is based on the value of internationally recognized companies, we are open to scare-mongering by a media with an insatiable appetite for sensational news. Fear generated by focusing on the volatility of markets can lead us to make investment decisions that can have disastrous effects on our retirement goals. Focusing instead on the thousands of great companies that comprise the markets . . . and provide us with the goods and services we need and use everyday . . . has a calming effect and is more reflective of the underlying reality of the markets. Like millions of other global consumers, I’m sure you plan to keep buying food, clothing, vehicles, technology and services from the many great companies that make up global markets, thus driving profits for those companies.
Here are a few examples:
• The international sports apparel company Adidas dates back to the mid-1930s. Now it has product distribution around the world and employees 47,000 people.
• Molson Coors goes back to 1774 in England. It now employs 15,000 people worldwide and serves over 30 countries, with over 65 individual brands.
• Apple Incorporated has been around since 1976 and now has a market capitalization larger than Exxon Mobil, and larger than IBM and Walmart combined.
• Honda dates back to 1937 and is now the seventh largest automaker in the world with 180,000 employees.
• Royal Bank of Canada started as a merchant bank in Halifax in 1875 and is now a global competitor in the banking business.
• Johnson and Johnson began in the mid-1880s with surgical dressings and now, as the largest pharmaceutical company in the world, is also one of the most respected.
Consider the companies that are just getting started today—the companies in garages and small storefronts that will one day become the next Apple or Adidas or Johnson & Johnson. They represent future opportunities for investors to supply capital and receive reward in the form of capital growth. The forward-looking opportunities for global capitalism are very bright. Brilliant minds around the world are constantly developing new concepts and technologies: consider zero carbon emission electric vehicles, three-dimensional printing, clean water distribution, health and biotechnological advances, and unprecedented advances in communication technologies.
Successful investing requires having confidence in the ability of the stock market to generate long-term financial rewards for the risk you are taking. The following charts show the devastating effects of fear on investor’s portfolios. The graph on the left shows the growth of the market from 2009 onwards (overall, an upward trend), while the one on the right shows the billions of dollars that fearful investors took out of the market over the same time frame.
When you find yourself in a water cooler conversation about the markets, recall that the word ‘markets’ references the combined measurement of success and failure for publicly traded companies worldwide.
This article by Daryn Form was published in the September 2012 edition of Sask Business Magazine.
Daryn Form is a Senior Financial Advisor with Assante Capital Management Ltd. providing wealth management services to principals of family-owned and privately held companies. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada. The information mentioned in this article is for general information only. Please contact him to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Rates are not guaranteed and are subject to change at any time without notice.