Today, we are getting ready for graduation for many of our beloved students. Our futures and theirs mingle together in a surreal way, like seeing the same thing from different points of view. The possible outcomes seems to change daily as the tectonic plates of technology, culture, politics, and energy shift about under our feet. Just a few minutes ago in 1999 I was exploring my primitive Nokia flip phone, and suddenly I'm in my living room with a 9th grader who's showing me how to get the most out of my smart phone. When I was little, my grandparents told me I was going to be the future. Now I'm a portly middle-aged dude who's holding his first grandchild.
"What does this have to do with the investments," you ask? Nothing. I just feel old right now and needed to get that off my chest. But seriously, things have changed, and most of us would agree for the better. Back when we were pumping dimes into pay-phones things were a bit different in the old stock market. In 1984 we would ask for "a quarter and a dime" to buy a cold drink out of the vending machine. Some of you reading this will balk a that, having only paid a nickel. Those were good days. We rode huffy bikes and played GI Joe and Star Wars. Even lower-grade neighborhoods like ours were relatively safe.
George Orwell missed the mark with his dystopian/communist-warning novel, 1984. Many people today feel he was about forty years early. The actual 1984, gave us a lot of new things. Apple computer introduced the world to the Macintosh with a record $900,000 Superbowl commercial. Prince gave us Purple Rain, and a not-so-like-a-virgin Madonna jumped out of a 17-foot cake on the first ever MTV Music Awards. We said hello to Tetris, the space shuttle Discovery, and Alex Trebek's Jeopardy. We watched Ghostbusters, Footloose, Miami Vice, and Karate Kid for the first time. The first Compact Disk was manufactured in the US. Can you guess the artist? The fact that the album was "born in the U.S.A." may give you a hint.
My personal favorite '84 story was that of Michael Larson, a contestant on Press Your Luck who beat the game show out of $110,237 by memorizing the patterns and avoiding the undesirable Whammy's. As clever as he was, Mr. Larson ended up losing all of it. If Mr. Larson had invested his winnings in the S&P500 index fund (now known as Vanguard Investor Index Fund (VFINX), he might have had a net worth of over $1.2 Million when he passed away in February of 1999. Instead, the Whammy's caught up with him at 49 years old while fleeing the law over extortion charges, according to Wikipedia.
Now about that investment. You can't invest in the S&P itself, but one can invest in a fund that mimics the daily "holdings" of the index. These "index funds" try to match the weights of the index they follow. The idea being that in the long run, survival of the fittest (companies) will work itself out to the investor's benefit. There are many times when this proves true.
The interesting thing is that if you lift the hood today on the mutual fund I just mentioned, you'd find a very different engine from the 1984 model. People don't realize this, but an index like the S&P is ever-changing, just like the lights on the game board. Companies move around and even come in and out. And its impossible to predict which one will win this round. But in 1984, the top companies by weight in the S&P500 would have been much different than today. For example, a peak under the bonnet then would have revealed mostly oil and vehicles. Today's top spots go to Microsoft, Apple, Amazon, NVidia and Google (Alphabet). Those five companies weigh in at about 24.5% of the index's weight. Today is 5/10/24, and these values change constantly, so just keep that in mind.
The lesson here is that we can't guess the patterns, but we can come out ahead. The Whammy's will always be there, and history tells us that we will lose sometimes. But if we stay diversified and stick to the plan, we usually turn out okay. Things may change, but change is usually good. since we Americans like to make life better for ourselves and grandchildren. So next time you are fretting about the markets, just remember how far we've come, and how far we have yet to go. Take a deep breath and relax. And just keep going.
Wishing you all a no-whammy Summer,
Ivan