What it means to be a global investor… and why does it matter?
The world, they say, is a global village. Nowhere is this truer than in investing. We firmly believe in taking a global approach to investing. But what does it mean to be a global investor, and why should anyone care?
When we say we’re ‘investing in the global capital market’, we mean buying tiny bits of some 43,000 publicly listed companies across the world with a collective value of around £57 trillion!
as an investor in the global stock markets, some 43,000 CEOs and millions of employees go to work every day to make you richer!
This means, that as an investor in the global stock markets, some 43,000 CEOs and millions of employees go to work every day to make you richer! They produce goods and services, which they sell to each other and the rest of the world. Therefore, as a global equity investor, you’re investing… heck, banking on the collective effort, creativity and intelligence of these CEOs and their armies of employees.
By implication, you profit from the collective performance of these companies. This is what legendary investor Jack Bogle meant when he said that ‘the stock market is a giant distraction from the business of investing’. In the long run, he noted, ‘investing is not about stock markets at all but about enjoying the returns earned by businesses.’
‘investing is not about stock markets at all but about enjoying the returns earned by businesses.’ Jack Bogle
So rather than saying ‘we’re investing in the global stock market’, we really should be saying ‘we are investing in the great companies of the world. We’re backing their CEOs and employees to create and sell goods and services that other people want and need. They are investing in their collective intelligence, creativity and efforts.’
Now, it’s not impossible that these companies will collectively fail to turn a profit in any single year. When they do well, your investments do well. When they don’t, your investments don’t. But over the long term, the overall direction of travel is that they are producing more, selling more and generally finding better ways to serve their customers. This means that over time, the value of these companies tend to go up.
For instance, the collective value of global stock markets stood at $2.5 trillion in 1980, according to the World Bank. By 2000, it had reached $30.9 trillion, $60 trillion by 2007, only to dip back to $32.2 trillion during the financial crisis of 2008. But that was temporary, these companies soon resumed their advance, reaching a whopping $68.8 trillion (£57 trillion) at the end of 2018.
What’s more, new companies are being created every day, and many of these ultimately make their way to the stock market as they seek capital to grow and invite other people to participate in their success.
For instance, the World Bank recorded 17,000 publicly limited companies globally in 1980. By 2000, the number had more than doubled to 40,000! Today, there are 43,000 of them!
Thinking of investing this way brings confidence and clarity. It becomes crystal clear that you are not gambling on the stock-market. We are investing in real businesses, managed by real people, creating and selling real products and services in over 195 countries. While the stock market may fluctuate and the world at large is always in flux, a £57 trillion basket of some 43,000 companies cannot be inherently unstable. Governments come and go. But every day, 43,000 CEOs and millions of their employees across the world go to work to do the best they can, for themselves and for you, the investor and ultimate owner of these companies.
Performance of Major Asset Classes
‘Imagine it, dear reader: a couple with 40 years to live, making investment policy out of today’s terror headlines. This isn’t confusion; it’s daylight madness.’
The chart below shows the performance of major asset class for the whole of 2018, and year-to-date in 2019.
When the capital markets wobbled during the last quarter of 2018, the financial journalists were wetting their pants. They were all too quick to roll out their alarmist headlines. But when the market recovered in the first few months of 2019, they were silent.
It’s worth pointing out here, that if an investor acted in response to these headlines, panicked and sold their investments, they would have missed out on the subsequent rebound.
if an investor acted in response to these headlines, panicked and sold their investments, they would have missed out on the subsequent rebound.
The lesson here is this, to succeed as an investor, we need to learn to ignore the alarmist financial headline.
To conclude, we remind readers of our perspectives on long-term investing and reassure you that we will continue to monitor the performance of our invested funds and portfolios. Only in the event of significant negative performance, combined with negative qualitative factors will we look to divest from a fund in our portfolios and our review process will enable us to do so, to ensure ultimately, that client’s desired outcomes are fulfilled.
With effect from January we’re going to be making some changes to our investment performance bulletins and will be shifting to a half-yearly performance report because so little changes quarter to quarter. In response to feedback, we’re going to shift away from using the ARC indices as benchmarks for our performance and instead use inflation – the retail price index.
We hope you found value in the materials provided and look forward to discussing matters with you further.This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.