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I want to spend a few minutes talking about how to think about investments instead of just focusing on what's happening now. To explain this better, I'll tell you a little about my own story. Here's a copy of the New York Times from March 12, 1942. I'm a little behind on my reading. At that time, we had entered the war three months prior, and we were losing.
The newspaper headlines were full of bad news about what was happening in the Pacific. I've separated some of the headlines from the days leading up to March 11th, which was an important day for me. You can see these headlines now. It seems we're in South Africa, big trouble in the Pacific. A few months later, the Philippines would also be taken.
But the news was already bad. Let's go to slide 3, from March 9th. I hope you can read the headlines. The newspaper cost 3 cents. Just so you know, now let's look at the slide from March 10th. Whenever I use this modern slide technology, I like to check if I 'm seeing the same thing as you. So, on March 10th, once again, the news wasn't good.
Clear road to Australia. The Stock Market reflected this. I was... I was following a stock called City Service Preferred, which had been sold for 84 the previous year, and in January, two months before, it was sold for 55. Now, on March 10th, it had fallen to 0 that night. Despite the headlines, I told my father, "I think it 's time to act," and asked him to buy three shares of City Service Preferred the next day.
This was all the money I had saved in the last five years or so. The next morning, my father bought the three shares. Let's see what happened the next day, next slide please. And look, it wasn't a good day. The Dow Jones Industrial Average fell below 100 points; it fell 2.28. As you can see, that would be like a 500-point drop today.
I was at school trying to understand what was happening, of course. Just so you know, you can see that on the left side of the graph, the New York Times placed the Dow Jones below all the averages they calculated. They had their own averages that disappeared over time, but the Dow Jones continued. The next day, let's go to the next slide.
You'll see what happened; the stock was at... 39 My father bought my shares early in the morning because I had asked him for the three shares. I paid the highest price of the day, 38.25. At the end of the day, the stock fell to 37, which, to be honest, ended up being quite common in my stock market adventures in the following years.
At the time, this stock was traded on the exchange called the New York Curb Exchange, which later became, even with the war looking bad until the Battle of Midway, if you look at the next slide you will see that the stock did very well. You can see where I bought it, 38.25. The stock ended up being repurchased by the City Service company for more than 200 per share.
But look, this is not a happy ending story. Because if we look at the next slide, you will see: "Well, as they say, it seemed like a good idea at the time. I sold the shares and made a profit on them." Once again, typical of my way of acting. When the stock fell to 27, it seemed like a good idea to secure that profit.
Well, what is the lesson from all this? We can tell you... I want you to imagine that we are back on March 11th. 1942 As I said, things looked bad in both Europe and the Pacific, but everyone in this country knew the United States would win the war. We were caught by surprise, but the "we will win" mentality had worked well since 1776.
So, if you look at the next slide, I want you to imagine that at that moment you invested $ 10,000 and put that money in an index fund. We didn't have index funds back then, but basically, you bought the SMP 500. Now think for a moment and don't change the slide. I want you to imagine how much that $000 would be worth today if you had a simple idea, like buying a farm to maintain for life depending on its production.
You would look at what the farm produces to decide if it was a good investment. The same goes for an apartment building if you bought it to keep for life. But instead, you decided to invest the $ 10,000, maintaining a stake in American companies without ever looking at other stock prices, without listening to anyone's advice.
I want you to think about how much money you would have today, now that you have a number. Let's move on to the next slide and see the answer: you would have 51 million dollars and you wouldn't have needed to do anything. You wouldn't need to understand accounting, you wouldn't need to look at stock quotes every day like I did on that first day.
I had already lost $0.75 when I got back from school. All you would need is to believe that America would prosper over time, that you would overcome the difficulties, and that if America prospered, American companies would also prosper. You wouldn't need to choose winning stocks or the right time to invest; you just needed to make an investment decision.
And that wasn't the only chance; I could show you other times that would have brought even greater gains. But when listening to today's questions and answers, remember that the main question is: How will American companies perform during your life as an investor? I'd like to make one more comment because I think it's interesting.
Let's say you took those 10,000 and listened to the pessimists, the people who always say that everything will go wrong, and you'll hear that throughout your life, and instead of investing in stocks, you decided to use the 10,000 to buy gold. With that money, you could have bought about... 300 ounces of gold while companies were reinvesting in new factories and new inventions were emerging.
You would go to your safe every year and find your 300 ounces of gold there. You could look at them, hold them, do whatever you wanted, but they wouldn't produce anything, they would never produce anything. And what would you have today? The same 300 ounces of gold you had in March 1942, and they would be worth approximately $0.00.
In other words, if you chose an asset that generates nothing, like gold, instead of one that actually generates money, reinvests, and pays dividends, you would now have a value that is more than 100 times less than you would have with a productive investment. In other words, for every dollar you earned investing in American companies, you would have less than a cent if you had invested in something like gold, which people tell you to run from every time they get scared by the impressive news that in this country we had the best conditions for investing that one can imagine.
For an investor, it is practically impossible to fail unless you buy the wrong stock or get nervous at the wrong time. But if you bought a little bit of gold .... All the major American companies have invested their money consistently over the years. There's no comparison to having something that produces nothing.
Honestly, it's not even comparable to constantly buying and selling stocks or paying investment advisors. If you had followed my advice—that retrospective advice that's always easy to give—you would have had a problem: your stockbroker would probably have starved to death. You could even go to the funeral for respect.
But the truth is, you would have had a much better result than most investment professionals and people who try to be active in the market. It's very difficult to keep going in and out of investments and manage to surpass what can be achieved with a more relaxed approach. And you don't need to understand so much about accounting or stock market terms or what the Fed will do next time, whether it will raise interest rates two, three, or four times.
None of that really matters in an investment life. What matters is having a philosophy that you believe you understand why you are investing and not risking things you don't know. So, with these optimistic words, let's move on and start with the questions.
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