1.21 Gigawatts

On October 21^st, 1985, Marty McFly went back in time 30 years to escape Libyans, save Doc Brown’s life, and turn his dad from a weenie into a hero.  He also wound up with a rad 4×4, but before he could take it for a spin, Doc Brown stopped by in a flying DeLorean to whisk him 30 years into the future, to 2015.  Hijinks ensued as bully Biff Tannen got ahold of a sports almanac from the future and made a fortune betting on sports, but Marty saved the day with skateboarding, 1980s pop culture references, and a soundtrack provided by Huey Lewis and the News.

Since this month marks the date that Marty and Doc Brown arrived in the future, it provides us with a convenient frame of reference for what a 30 year time period feels like.  From 1985’s perspective, 30 years into the future felt like a long time.  It seemed like plenty of time to develop flying cars and for the Chicago Cubs to put together a championship baseball team.  In reality, you still need roads in 2015 and there’s always next year for the Cubbies.   What did 30 years look like from an investment perspective?

The S&P 500 averaged a return of 10.9% annualized with dividends reinvested from 10/21/1985 through 10/21/2015.  This doesn’t mean that the market returned 11% each year.  It is human nature to see an annualized number and assume that the returns were grouped around the average.  2004 saw a return of 10.88% while 1993 was up 10.08%.  These were the two years closest to the average.  The rest of the returns were much more varied.  Over half of the years saw a return of 15% or more, but there were three years with a return of -9% or worse, too.  While historically the market returns 8-10% per year, it is unlikely to hit that mark on the nose.

It’s too bad that we can’t expect long term returns like this out of the stock market any more with all the uncertainty in the markets today, right?  China is becoming a global economic juggernaut, there is trouble in the Middle East, Russia is flexing its military muscle, and we’re in year six of a bull market run.  If you fire up the DeLorean and head back to 1985, though, you’ll see many of the same concerns.  Japan was the global juggernaut.  There was trouble in the middle east (the Libyans were even after Doc Brown!).  The Cold War was in full swing and the stock market was on a similar roll.

There were plenty of reasons for fear during the last 30 years, too.  On October 19^th, 1987, the S&P 500 fell over 20% in one day (the market was still positive for the calendar year).  Growth stocks dominated value stocks in the 90s… until they didn’t.  Leading up to the bursting of the tech bubble, many wondered if Warren Buffett had lost his magic touch since he didn’t understand and didn’t invest in internet names.  Buffett did just fine in the following 20 years.  The global financial crisis struck in 2007.  Warren Buffett penned a New York Times Op-Ed saying he was buying American.  Buffett has done just fine since then, too.  Over the short term, uncertainty looks unbearable, but with a longer time horizon it is revealed as a driver of returns.  It seems like there’s always a reason not to invest in the stock market, but investors who look beyond the short-term will find that being invested is much more compelling.

Photo by Luke Hayfield Photography