Quote:
Originally Posted by Phanuthier
I have a Q particularly for you, Cowboy - how do you see this "the wealthy barber" idea working in the next decade? To me, it sort of seems like an old idea that worked in the 20th century, but I'm not sure its going to work for the next decade or two.
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I think really what you're getting at is whether or not the economy in general will continue to perform at it's post-war growth levels in the medium term to allow a 'buy and hold' strategy to continue to be a guaranteed winning strategy. That is ultimately my biggest fear, because without that in essence there is no 'proper long-term strategy' to invest your money. Some of my thoughts on the subject include Japan as a case study. If you invested in the Japanese stock market in 1989 and held your shares to today you would be nominally down 75%, without even considering inflation (Although in Japan that has been minimal over the time period). I think one of the biggest reasons for this lack of performance over such a long period of time has to do with the country's demographics. Over the past 20-25 years Japan's population hasn't grown all that much, and the make up of that population has shifted much older, rendering their workforce to be actually smaller than it once was. In order to grow real GDP you need a combination of increased productivity, population growth, and/or increased exploitation of natural resources. With a shrinking workforce, a stable population, and little exportable natural resources any and all growth in their economy has to come soley from the innovations and productivity gains overcompensating for a lack of the other two, and quite frankly it hasn't.
Warning signs for the US and Canada of following down a similar path would be our fertility rates. Canada's is negative for population replacement and the US's is right with replacement. Without massive immigration we risk falling under the same problems that have plauged Japan (an aging stagnant population with a shrinking workforce).
Of course you don't have to invest in just Canada and the US. There are many other places in the world there is still massive population growth and economic opportunities to be had for the next generation of investors. What this tells us is that it is extremely important to diversify assets globally.
Ultimately I think all any of us have to fall back on is our own earning potential in a dramatically changing world.