David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141
www.Bristlecone-VP.com


The Leap of the Century (On the Nature of Records)

Nearly 50 years ago, nine months before Neal Armstrong’s “giant leap for mankind,” another American made his own giant leap for the record books. The scene was the 1968 summer Olympics in Mexico City. The date was October 18, 1968.

Through the 1960s—almost as though engaged in a remote, long-running battle of the Cold War—American Ralph Boston and Soviet Igor Ter-Ovanesyan had steadily traded world records in the long jump and pushed the record distance out by a full 5 inches. By the time of the 1968 Olympics, those two shared the record: 27 feet, 4.75 inches.

Both Boston and Ter-Ovanesyan were competing that night in 1968, along with reigning Olympic champion Lynn Davies. But it was another man, American Bob Beamon, who stepped up on his first attempt in the final and made what came to be known as the Leap of the Century. Beamon absolutely shattered the world record, landing almost 2 full feet beyond the prior record. The jump was so startling that it caught event officials unprepared. The optical measuring equipment in use had not been set up to measure such a distance, so a manual tape measure was eventually brought out, stretched, re-stretched, and finally, after a nearly 20-minute delay, the new record was announced. Beamon collapsed to his knees in shock.

This week, headlines indicated that the S&P 500 is flirting with a “record” of its own, the longest bull market in history, dating nearly nine and a half years from its beginning on March 9th, 2009 and surpassing in length the 1990s bull market.

Although it’s great for the headline writers, this type of record for the stock market isn’t all that exciting to us, and nowhere near as dramatic as Beamon’s achievement. But it does give us occasion to reflect on the elements leading to such an extended upward move and put the performance of large company US stocks in a wider context.

First, and most significantly, we hardly need to remind you that this bull market was born from the rubble of one of the largest market collapses of the last century. The S&P 500 had fallen from a peak of 1,565 in October 2007 to a low of 677 in March 2009. That moment in 2009 was one of the few times in the last decades when US stock prices were unambiguously cheap (we called it a “generational buying opportunity” at the time). Prices and valuations (more importantly) were very low then, and that helped set the stage for a pronounced run.

For such a lengthy upturn, though, and one nearly unblemished by significant market pullbacks, a steady economy was another key ingredient. The recession during the Great Financial Crisis ended in June 2009, and since then GDP growth has been consistently solid, if not spectacular. In fact, it is no coincidence that the current period between recessions is also nearing a record. That strong economic background has allowed corporate profits to rise spectacularly–aided more recently by federal corporate tax rate reductions.

Another key ingredient: low interest rates. Miniscule interest rates, pushed lower by Federal Reserve policy over most of that period, have made more conservative alternatives to stocks less attractive and encouraged investors to hold riskier assets.

We don’t know how long these ingredients for the current bull market run will hold, and neither does anyone else. It is fair to say, though, that prices and valuations are much higher today than they were in 2009, corporate profitability is already at record high levels, and that interest rates have moved upward over the last two years. We do know the bull market run will end, though.

Here’s the thing: these types of market records—how high and how long—shouldn’t matter too much for your own financial picture and outlook. The nature of Beamon’s record and any stock market record are fundamentally different. The world record for the long jump, impressive as it is, by its nature can only be broken episodically and by so much. Material increases in the record length a human can jump have only really come a few times in the last 75 years: advancing about two and half feet from Jesse Owens in 1935 through Bob Beamon and finally to Mike Powell in 1991. The S&P 500 was at about 15 when Owens set his record, 100 when Beamon broke his, 400 when Powell set his, and over 2,800 today!

By virtue of support over the very long term from a growing economy, growing markets, and growing company fundamentals, the stock market has, will, and should set new records regularly (interrupted, of course, by regular dips). Remember that US large cap stocks (like those in the S&P 500) are just one part of your diversified portfolio and do your best to ignore headlines of stock market highs and lows so you can remain steady and enjoy the long-term benefits of sticking to your plan.

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