Over the long term, stock prices in the aggregate mirror the growth in the economy. Inflation aside, our economy grows mainly due to advancements in productivity brought on by advances in science and business methods, increases in the usage of capital equipment and progress in worker skills. These factors work only in one direction—growth. While shorter term economic and geopolitical cycles (recessions and cyclical expansions, war and peace) are common, they have never represented more than waves in an advancing tide. During good times investors tend to become overly optimistic and bid stock prices to unreasonable heights. These times are not the best to buy most stocks. During tougher times, investors frequently forget that all past recessions and wars have ended, and they allow their fears to lead to overly pessimistic views. Such times are when experienced investors sharpen their pencils. These are the investment facts of life...
Feb 2003