There are a lot of reasons floating around for people not to buy stocks. In fact, there always is a powerful bearish case to be made about stocks. I know people who’ve built businesses and careers being bearish about stocks no matter how well the markets and economy were doing. The fact is it’s easier to make a bearish case than a bullish one almost all the time.
That’s why you should read the latest quarterly report from Ron Baron of Baron Funds beginning around page 14. Baron almost always is bullish, and it has paid off from him and his shareholders long term. He seems especially bullish now. Stocks have had poor performance since 2000, so Baron thinks they and the economy are due some time soon to return to normal growth levels. He also says that the companies his firm analyzes and invests in are doing a lot better than the data and prevailing forecasts say the economy is doing.
While we are not economists or stock market fortune tellers, based upon our fundamental research of businesses, we think America’s economy will likely continue to recover and our stock market will continue to advance. This is because, while in the short term, stocks and economic performance often diverge, over the long term, the U.S. stock market and economy have always been inextricably linked. For example, in 1960, when President Kennedy became President, the GDP of our economy was $523.7 billion. It is now $15.9 trillion! That represents growth of approximately 6.78% per year for 52 years! The Dow Jones in 1960 was 615. It is now 14,578. This represents an advance of 6.24% per year for the past 52.25 years. When dividends are added to this appreciation, stock returns have been more than 9% per year for the entire period! While our nation’s economic growth has averaged 6.1% per year since 1900 and 6.8% per year since 1961, it has approximated only 4.1% per year since 1999. We think this lower than average growth rate for America is an anomaly. Depressing our nation’s GDP growth rate during the past thirteen years were our response to a terror attack on America; fighting two wars; one of the worst financial crises in our history; and a European financial crisis that, to date, has not been dealt with as effectively as our Federal Reserve has dealt with ours.