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What is the usefulness of the published financial statements and information provided by the press to you, and how should they be useful to investors? This has improved a lot, not only in the press but also in company reports. Ten years ago, companies didn't have interim balance sheets. Imagine if they provided a balance sheet once a year, quarterly AGMs, what's happening with their inventory, accounts receivable?
Today, you find information on 2,500 companies and more than 5,000 different funds in the major newspapers. Notice that there are twice as many funds as stocks, and you find everything in today's newspapers. So I think the reports have improved over time. But again, I think if you own car stocks, you shouldn't be reading the financial section of the newspaper.
There's a day of the week when newspapers dedicate entire pages to cars, saying one is terrible and the other is excellent. They really analyze car stocks, and that's the part of the newspaper you should be reading. You shouldn't be calling your broker four times a day to get stock quotes. That doesn't work.
Waking up in the morning to see how your stock performed yesterday is useless; it 's all just a waste of time. You should be looking at the... When you receive the quarterly reports, if you work at the mall, imagine you're in the retail industry or the restaurant industry. You would have seen Taco Bell, you would have seen McDonald's.
I mean, you would have seen all these companies doing extremely well. You would have seen several growing across the country. That's what you're dealing with. You're not dealing with the day-to-day details. You're dealing with what this company is doing 2, 3, 4, 5 years into the future. And if you 're dealing with a cyclical company and the business is changing, you wait for signs that the business is slowing down.
When you see them, you move on to something else. You're worried about the volatility of the financial markets currently. You think something should be done to reduce it. I love volatility. I remember in 1972 the market crashed drastically and Taco Bell's stock plummeted from 14 to 1. They had no debt, never closed a restaurant, and I started buying when it was at 7, but I held the stock and it fell to 1.
That was Magellan's biggest position in 1978 when Pepsi Cola bought it for 4. 42 and I believe it would have reached 00 if it hadn't been acquired. I don't think it's healthy for the public for the market to rise 80 points one day and fall 80 the next. That's not good, but these daily limitations to reduce volatility are necessary.
The market will continue to rise and fall. Human nature hasn't changed much in thousands of years, and from time to time unexpected events arise that cause the market to fall or rise. Markets will continue to have ups and downs. I believe this is a great opportunity as long as people understand what they own.
If they don't understand, they can invest in funds. Historically, company profits grow by about 88% per year, which means they double every 9 years. The stock market should double every 9 years. Today the market is around 3,800. I'm sure the next 3,800 points will be up. I can't say where the next 500 or 600 points will go, but the market should double in the next 8 or 9 years and again in the following eight or two years because profits will grow and stocks will follow that growth.
We are in October, which many call... The Haunted Month for the Stock Market: What is your outlook for this month and when do you think the Dow Jones will reach 4000 points? October has always been a special month. I remember 1987. At the time, I was very convinced that the market wasn't going to crash and I wasn't worried about things.
My wife Carol and I had planned a big golf trip to Ireland. We were going to visit golf courses and stay in a little house, traveling all along the west coast of Ireland playing golf. We went out on Thursday night and the market dropped 55 points that day. The next day when I got back to the hotel I called to find out how the market was doing and it had dropped another 112 points on Friday.
I told Carol if the market crashes on Monday we'll have to go back, so we stayed there for the weekend and on Monday the market dropped 508 points and my fund went from 12 billion to 8 billion dollars. I thought at the end of this week I won't have any more funds, but there wasn't much I could do. But I think my shareholders called asking what the lint is doing and said Well, he's on the sixth hole and is performing well in the game so far.
He could score a triple here; it could be a big turnaround. I think that wasn't exactly what they wanted to hear, so I went home to suffer along with everyone else. In the 13 years I managed Magelan, the market fell nine times, and every time the market fell, my fund also fell. I made nine out of nine.
Never forget that if you invest $0.00 in a stock, the most you can lose is $0.00. But if you're right, you can win $5,000, $ 10,000, $15,000. So in this business, you don't need to be right half the time; you can be right one out of four times, as long as when you're right you know the company is doing well and you increase your position, or at least sell.
That way, you can win much more on the upside. Now, to know if the market will reach $4,000 this year or next, I'll flip a coin. Heads means it will go up because it's a coin with two heads. The market will go up next year. That's all I know about the stock market. As you can imagine, we have questions about where people should invest their money.
Investing $0.00 a year to save for your 4-year-old daughter's education—where should you put that money? This is important, whether you're investing for a 4-year-old, a 14-year-old, or a 74-year-old. You have to ask yourself, "What will I do when the market crashes?" I've spoken to audiences like this and I ask how many of them are short- term investors.
I've never seen anyone raise their hand. Everyone in the world is a long-term investor until the market crashed in '87. The market simply plummeted, and when you called the companies, they said, "Our business is great, we're about to announce a share buyback, or we're already buying back shares." That's great, and we can't understand what's happening.
So I would say, if you want to buy a growth fund or a mixed fund that's partly in stocks and partly in bonds, put in a sum of money and add more each year. You'll be very happy. In 10, 20, 30 years, the stocks will far outperform the bonds. No large corporation—think of any of them—has ever met and said, "We're doing great.
Let's raise the interest on our debt." Our bond investors... Debt has been truly loyal, we're paying 88%. Why not increase it to 9%? That simply doesn't happen. On the other hand, companies like Automatic Data Processing are incredibly successful and have been consistently growing profits for 32 years with double-digit growth, even facing recessions, wars, and changes in Congress and the Supreme Court.
And this isn't an isolated case. Johnson & Johnson has 30 years of continuous profit growth. You don't find many companies like that in other parts of the world. That's exactly what you're buying when you invest in a fund: a group of solid and successful companies. I see the stock market differently.
Many people compare it to chess, but that's not the best game to explain market behavior. In chess, everything is in plain sight, the moves are known, and technique dominates. But in poker, uncertainties prevail. You can make the right decision and still lose because it's not even under your control.
But if you continue playing correctly over time, like night after night, month after month, the result tends to improve. And the stock market works much more like poker than any other game. h
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