Using the outlook for the economy to predict the direction of the stock market, which most appear to do, has it exactly backward. The stock market’s behavior will predict the economy’s future behavior.
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In general, the batting average of doomsayers in the U.S. is terrible. Our country has consistently made fools of those who were skeptical about either our economic potential or our resiliency.
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Like the basic laws of physics, where action creates reaction, economic and political trends tend to develop their own countervailing pressures.
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The important question for the investor is not whether conditions are good or bad (if, in fact, they can be measured on such a scale), but whether they are changing for the better or for the worse relative to expectations.
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The important question is not whether conditions are good or bad, but whether they are changing for better or worse.
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A good record doesn’t necessarily prove good management. Outside economic factors such as the business cycle can make any company look good for a while.
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I’ve studied the Constitution and the Bill of Rights, and I don’t see anywhere that we have to have a recession every four years. I don’t see why you can’t have a decent environment for years and years.
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The strength of our economy is that it is dynamic and always adapting to changing conditions. That’s our advantage in the world.
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So long as a capitalist system persists and the financial markets hold together, equities do have a built-in long-term rate of return. That rate of return is a nominal measure of the economy.
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The whole reason that our capitalist system works the way it does is because there are cycles, and the cycles self-correct.
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Any contrarian knows that just as a grim present is usually precursor to a better future, a rosy present may be precursor to a bleaker tomorrow.
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The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we finally understand it, the ground shifts under our feet.
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The best companies often thrive even as their competitors struggle to survive.
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The general state of business thus does not forecast the course of stock prices except in the apparently paradoxical fashion that great prosperity affords an advantageous time for selling stocks, extreme business depression an opportunity for purchase.
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The fabric of civilization today is woven of millions of threads. No spot in it is so strong that it will not feel some effect from a weakening at any point.
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Just as in the realm of pugilism, a few years of soft living will make a Dempsey easy prey for a Tunney, so a period of prosperity contains the seeds of its own destruction.
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This is the way the capitalist ecology works. Industries decline, old companies wither away, and young companies rise up to replace them. This process is hard on many, but ultimately, it is healthy.
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I’ve never understood the apocalyptic theory of investing. If the world really does collapse, is it really going to do you any good to have a few Krugerrands in your pocket?
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The best time to get involved with cyclicals is when the economy is at its weakest, earnings are at their lowest, and public sentiment is at its bleakest.
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The factors that affect the state of what we call “general business” are innumerable.
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When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
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When things go badly, people become cautious. Then their caution causes things to go well, and when things go well, they become incautious. I think that’s a forever cycle.
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Every economic recovery since World War II has been preceded by a stock market rally. And these rallies often start when conditions are grim.
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The market cycle of the future may prove to be surprisingly independent of the business cycle, and it may even exist if there is no business cycle — which is in itself quite an assumption, but not an entire impossibility.
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Economic events rarely unfold in the way stock-market people forecast them.
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The stock market has a 100% record, in the last 50 years, of predicting upturns in the economy. It’s never been wrong. It’s less than 50-50 on a downturn.
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