Things change quickly

Things change quickly – and more drastically than many think…

There was a good article in The Wall Street Journal on December 5, 2014 titled “16 Rules for Investors to Live By.”  One of the rules in particular struck a chord with me.  Rule 6 said:

Things change quickly—and more drastically than many think…

Fourteen years ago, Enron was on Fortune magazine’s list of the world’s most-admired companies, Apple was a struggling niche company, Greece’s economy was booming, and the Congressional Budget Office predicted the federal government would be effectively debt-free by 2009. There is a tendency to extrapolate the recent past, but 10 years from now the business world will look absolutely nothing like it does today.

Think about it, today, Enron doesn’t even exist, Apple is the most valuable company in the world, Greece has 25% unemployment and debt as a percentage of GDP in the US is as high as its been since WWII.  Further, 14 years ago, Facebook and Twitter hadn’t been invented, many people hadn’t even heard of Google, and Amazon.com was really only known as a book seller.

Another great example of how quickly things can change is illustrated by energy prices.  In 1998, oil prices bottomed out at $10.72 per barrel late in the year.[1]  Gas prices in the United States were comfortably less than $1 per gallon.  Within ten years, the price of crude oil spiked to an all-time high in the summer of 2008 reaching $147 per barrel.  Gas prices exceeding $4 per gallon were not uncommon across the country (I vividly remember seeing prices at $3.99 for the first time). 

Who would have guessed that 6 years after peaking, largely as a result of the “fracking” boom in the US and weaker global demand, crude oil prices would be halved.  In fact there are media reports that, as of December 5th, a few stations in Oklahoma and Texas are selling gas for less than $2 per gallon. 

These examples are truly amazing.  They demonstrate how uncertain the future always is.  One lesson is that the only constant in life is change.  Another lesson is to be very skeptical of those who are extremely confident in their own predictions (most notably the talking heads in various media).  The truth is, no one knows what tomorrow will bring. 

I think this is timely advice as the Labor Department reports the strongest job growth since 1999.  The US economy has moved a long way since the depths of the Great Recession in 2008-2009, as have financial markets.  As you enjoy another year of positive investment returns and read about the improving US economy, just remember that things can and will change in ways that no one can predict.  Though encouraging economic news has been more common recently, the future is as uncertain as ever. 

[1] http://oilprice.com/Energy/Oil-Prices/Why-Oil-Prices-are-10-Times-More-than-in-1998.html