One way to see the US economy up close? Take a drive across America.
That's exactly what I did in late November as my wife and I avoided the airports amid the COVID-19 surge and instead rented a car to make it to my brother-in-laws' nine-person socially-distanced backyard wedding in California.
Not long into the 4,500 mile journey that spanned a total of more than 60 hours, 15+ pit stops, 2 overnight hotel stays, 1 camping trip, and countless cups of coffee did my observational analysis begin to kick in.
Observational analysis was pioneered by Peter Lynch, a legendary portfolio manager of the Fidelity Magellan Fund. That fund more than doubled the S&P 500's annual return 13-years in a row during his tenure, ultimately becoming the best performing mutual fund of all time.
The main thinking behind observational analysis, also known as "local knowledge," is simple: invest in what you know.
Whether you're a repeat customer of a specific product you enjoy or you take a look at where your significant other consistently spends their money, investment ideas can come from the simple exercise of being present, aware, and observant in the real world rather than staring at an excel spreadsheet all day.
On my drive across America, I couldn't help but notice:
- The number of Amazon Prime 18-wheeler trucks on the interstate highway. By far the most popular truck on the road, well ahead of trucks carrying the logo of Walmart, UPS, or FedEx.
- Every single Flying J's and Pilot's and Love's roadside rest-stop filled to the brim with 18-wheelers that were either refueling or counting sheep at all hours of the day.
3. Trains as far as the eye could see carrying shipping containers filled with consumer goods throughout New Mexico, Arizona, and California.
4. Tens of thousands of wind turbines and solar panels scattered across the landscape in Texas and California.
5. A surprisingly strong showing of 18-wheelers transporting new Tesla vehicles straight from their factories to consumers across the country.
At its core, the economy is the flow of goods and ideas across people, and right now those goods are flowing.
The economy is always evolving as new technologies are adapted and innovation accelerates. Some of those innovations currently transforming the economy include:
E-commerce: It's why I saw more Amazon trucks than I did Walmart, Target, UPS and FedEx combined.
Electric Vehicles: It's why I saw more trucks delivering Tesla cars than I did for any other automaker.
Renewable Energy: It's why I saw more renewable energy sources in Texas than I did oil rigs. Over the past decade the costs to generate solar and wind energy fell 89% and 70%, respectively. 🤯
Unfortunately, I did not take this identical road trip in November 2019 pre-pandemic, so I can't provide a year-over-year comparison of how 2020 stacks up to 2019, but nonetheless the economy is humming along.
Even amidst a global pandemic, a heightened unemployment rate, and a spike in bankruptcies, consumers have adapted to the environment and are both spending and saving.
Consumer spending habits have changed during the pandemic. Money usually spent on travel, leisure, and restaurants is now being spent on Pelotons, cars, and new homes.
And they're pulling this off without taking on an unsustainable amount of debt like they did during the housing boom of the mid 2000s. In fact, consumers have one of the cleanest balance sheets on record, and the personal savings rate has more than doubled since 2019.
As bad as the headlines currently look and will likely look in the short-term as we enter the cold Winter months amid a surge in daily virus cases, the good outweighs the bad, and when it comes to investing, that's a recipe for long-term success.
Chart Of The Week
The chart above helps answer the question: is it worth investing in the stock market at all-time highs?
Looking at historical data going back to 1988, the answer is a resounding yes.
While past performance is no guarantee of future results, history suggests that investing at or near all-time highs is a winning strategy over time.
If you invested in the S&P 500 on any random day since the start of 1988, your investment made money over the course of the next year 83% of the time, with an average 1-yr return of 11.7%.
But if you only invested in the S&P 500 on days when the index closed at an all-time high, your investment made money over the course of the next year 88% of the time, with an average 1-yr return of 14.6%.
That means investors should leave their FOMO at the door if they have been sitting in cash amid the current market rally and want to invest for the long run.
And if you're still skeptical about how the stock market can continue to move higher from here, consider this: the most populous age in America right now is 29.
That age group is on the verge of getting married, forming families, buying houses and progressing in their career (and their salary base) for the next two decades. That's a recipe for a booming economy, similar to the 1990s when the baby boomers were aging into their peak earning years.
At Ithaca Wealth Management, we build customized investment portfolios to help you compound your wealth. Reach out today to learn more, or visit ithacawealth.com
Your Investments In The News
- Abbott Laboratories raised its quarterly dividend by 25% to $0.45 per share. The company received emergency authorization from the FDA for its at-home COVID-19 test.
- Salesforce announced a $28 billion buyout of Slack, the collaborative software company that has enabled businesses to transition to remote work amid the pandemic.
- Eli Lilly raised its quarterly dividend by 15% to $0.85 per share, and raised its full-year earnings guidance ahead of analyst expectations. Waste Management raised its quarterly dividend by 6% to $0.575 per share, and said it plans to restart its $1.4 billion stock buyback program.
- TJMaxx raised its quarterly dividend 13% to $0.26 per share. Stryker raised its quarterly dividend 10% to $0.63 per share. Mastercard raised its quarterly dividend 10% to $0.44 per share, and authorized a new $6 billion stock buyback program.
- Salesforce, Adobe, Costco, and Accenture reported revenue and profits that beat analyst estimates. Adobe also initiated a new $15 billion stock buyback program.
- Disney hit record highs after revealing its Disney+ streaming service has 90 million subscribers, hitting its original 5-year target in the first year launch.
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The Resilient Nature of Giant Sequoias
General Sherman pictured above is the largest tree in the world by volume and is more than 2,000 years old. And yet it couldn't have reached that status without fire.
Giant Sequoias are rare trees in the sense that they thrive during forest fires. In fact, they need them to survive.
The bark of a Sequoia tree is thick and fibrous, which provides strong insulation from the harmful heat of a fire. But the pinecones that spread seeds for more Sequoia trees to grow are hard and closed shut.
Fires help clear the forest floor and dry out the pinecones, opening them up and allowing seeds to spread with ample real estate on the forest floor to grow.
Sometimes a shock is needed to spur growth, whether it be in nature or in life.
The shock of World War II jolted the economy higher for decades as a baby boom led to significant population growth, and the resolution of World War I and the 1918 pandemic led to a decade of unfettered growth known as the roaring 20's.
Could the COVID-19 pandemic lead to a similar economic outcome once the wide spread availability of vaccines eliminates the virus? If history is any guide, the answer is yes. Thanks for reading, and please reach out with any feedback or questions.
Merry Christmas and Happy New Year!
