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In a recent Morningstar article, the author pointed out a few things.
“It feels like the economy has gone through three cycles in the past six years. The future looks very messy and uncertain, yet there’s no shortage of pundits that claim to know what will happen tomorrow.
But predicting the short-term direction of the economy has always been that way. ….
The media and investors alike are subject to recency bias: the tendency to place more emphasis on recent news and events than on older circumstances. There has been no shortage of economic disruptions over the past six years. Since mid-2019, the global economy has endured a pandemic, multiple supply chain disruptions, a short bout of inflation, and geopolitical tensions. Through all of that, real US GDP grew at about 2.3 percentage points annualized between July 2019 and March 2025.
It’s easy to get hung up on past problems and miss what’s important….
The US economy’s current situation has never looked better. Economic output, as measured by real GDP, currently sits near an all-time high. Real GDP broke $23 trillion in early 2024, and it is on pace to surpass $24 trillion in the next year. Inflation has cooled down to about 3% over the past 2.5 years, which is slightly lower than the long-run 3.5% average the US has experienced in the post-World War II era since January 1948.
Employment figures also look great by historical standards. The unemployment rate has hovered around 4% over the 12 months through June 2025, or below the long-term average of 5.7% dating back to January 1948. Further, the US economy has continued to employ more and more people as it has grown. It employed nearly 160 million Americans (excluding volunteers, farmers, and those self-employed) at the end of June 2025—an all-time high….
There are two major lessons that investors can glean from that data. First, publicly traded corporations perform most of the heavy lifting. Investors benefit by getting exposure to the market and reducing, if not eliminating, anything that drags on performance.
The second lesson is remaining steadfast when the inevitable drawdowns occur. Charlie Munger, Warren Buffett’s late business partner, summarized it best:
“I think it’s in the nature of long-term shareholding with the normal vicissitudes in worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down by say 50%. In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you are going to get…”
Munger spoke a harsh truth, but it’s one that all successful investors eventually make peace with. Shareholders are compensated for bearing risk. Some of those risks come from individual companies or market segments, while others are consequences of the economic cycle.”
https://www.morningstar.com/funds/big-secret-long-term-investment-success
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I am aware of a few dark clouds. The full impact of tariffs is not yet known. AI will displace workers. We simply don’t know how many and which skills. For example, Microsoft is laying off about 4% of its workforce, about 9,000 people. Other large corporations will do the same. Housing remains a problem. The home price-to-income ratio has risen from 3.5 in 1985 to 5.0 in 2025. (Years of income to buy the typical home). However, a 30 year mortage is about 6.8% whereas in 1985 it was 12.4%.
I also know that the recent economic reality isn’t what some were hoping to hear. There are those who were convinced otherwise and are betting on disaster. Of course, if that occurs they will go down with the ship, too. The most perverse are actually wishing for disaster. But, for long-term, rational investors, things have been very good.
Yes, a market correction is coming and there will be a recession. You can bet on that. But, while waiting for the inevitable don’t hold your breath and don’t get ahead of your skis.
It’s true Norman, a person might not like a lot of what’s going on, but owes it to him/herself to make good decisions not based on either positive or negative bias. We have made money through all the administrations going back to 1992 except one. Even that “one” provided a great opportunity for dollar cost averaging, and set up our savings for great growth in the years following.
Please note that in no way am I crediting or blaming any president for market results during their time in office.
We have to expect business cycles, but we don’t have to love them. Every time I get nervous, I call my financial advisor of 23 years. I won’t tell you how many times he has pulled me back from the edge. He has always been right. and so have I since I always followed his advice: “Nothing to do; it’s been taken care of”.
I don’t want to be the richest man in the cemetery. I just want to have a few bucks left over. My heirs can have the life insurance.
My portfolio is well balanced, with exposure to equities appropriate to my age and life span. However, this doesn’t stop me from checking it three times a day. Rarely does my mood remain unchanged.
One day, I hope to learn to accept the things I cannot change.
My son convinced me to stop watching TV news, and I feel so much better now that I just read it. I find it so much more calming.
Microsoft is churning 4% of its workforce, not shrinking. Full-time employees at year end looks like this:
YE 2022: 221,000
YE 2023: 221,000
YE 2024: 228,000
From reports I’ve read, they’re replacing old workers with new, less-expensive workers, and shifting the cost savings into AI acquisitions or AI datacenter CapEx.
I do agree the labor market is softening a bit. And eventually stock prices will correct, but there’s no predicting why, when, and for how long a drawdown will last. Best to simply position yourself to take advantage of discounted buying opportunities when the market drop inevitably comes.
Yes, my company is doing the same thing. Layoffs every month, but new hires abroad, mostly in India. In the short term, it has certainly boosted the stock price, and long term is irrelevant to the current top management.
They’ll get their bonuses and disappear off to the next job, and what’s left of the company will continue on, albeit in much worse shape than when they arrived.
One thing that strikes us employees as pretty funny is that the current reorg (implemented by McKinsey) says that employees will be 20% more productive as a result of their plans. Meanwhile, we the employees are saying the productivity increase will be at most the same percentage as our average salary increase, which is a whopping 2%.
I’m just trying to stick it out for another 2.5 years, at which point we should be good to retire.
There was an article in the Atlantic this week on McKinsey’s destruction of the middle class. I hope this share will work.
It worked. Great article. Thanks.
Good article, and yes, exactly what has happened in most large corporations. I’m lucky to work with a great team of people on a system that’s been around since the late ’80s.
The company decided to rewrite it in Java back in 2015, and the first client was supposed to go live in July ’22. The first nightly event (of hundreds) they converted was run in parallel with the old code one night. It took eight times longer to run 🙂
Instead of scrapping the rewrite, they outsourced the work to India. The people working on the code have zero experience on our system, have zero business knowledge, and have ignored all the suggestions given to them to improve run times and general efficiency. Of course, as far as the company is concerned, this is the way to go – use cheap labor and throw people at the project to get it done.
They are simply taking the old code and converting it to Java, and, if it ever works, we’ll be amazed if it’s useable. Events have to complete by a certain time every night to avoid SEC fines and avoid breaking service level agreements with clients.
All this is supposed to be done by end of 2027, which is six weeks short of my scheduled retirement date, if I last that long.
Most of us are retiring in the next few years, and many top-level technical people have already retired in the past two years. I’m really curious to see what happens by the due date.
Oh yes, ageism. Rampant in the tech business. I seem to remember Dick advocating for older workers to keep working longer. Employers don’t want them.
Rampant everywhere…
As a formerly older IT worker I found that if I was willing to compromise on salary – be paid less – I had no trouble getting work.
To be fair … my spouse also worked; all the kids were out of college; and our mortgage was paid off.
To follow the advice in your final paragraph, consider another Munger quote: “Don’t do anything stupid!”