Times Are Changing

There is an emerging market country that is developing fast. It is 40 years after a bloody civil war, but now it’s economy is already the second biggest in the world. It’s stock market represents 15% of the overall world stock markets, already exceeding countries like Germany and France.

Did you guess which county I’m talking about? It’s the United States of America. In 1900…


source: Credit Suisse Global Investment Returns Yearbook 2017

Times were different then. The world economy was still dominated by the UK (or may I say British Empire?), but was much more balanced than nowadays. Life was not comparable to our times. Nobody had driven a car, made a phone call or watched TV. There were no airplanes, the Wright brothers have just started to experiment with gliders. Computers were unheard of. What would we do without all these nowadays?

There was a very dominant industry though: railroads. At the start of the 20th century, railway companies have accounted for 63% of the US stock market and almost 50% of the UK. Nowadays these numbers are closer to zero…

Other dominant industries were textiles, iron, coal and steel. These industries have now mainly moved to the lower cost emerging countries. Even though Mr Trump seems to wish that this trend would reverse…

Industries Nowadays

In 2017, 62% of the US stock market is represented by industries that were small, or non existent in 1900. Think about technology, oil and gas, healthcare or even retail.

Nevertheless there are sector s that seem to be evergreen. These are banks plus the food and beverages. Seems like humanity still needs food to survive and money to progress. Does it suggest that these industries should be a part of a long term investment portfolio? In my view yes.


source: Credit Suisse Global Investment Returns Yearbook 2017

Not just the industries are changing, but also the relative sizes of the countries in the global stock markets. It took only a few years from 1900, and the US stock market has already overtaken the UK.

Decades later, Japan was emerging out of nowhere. After being on the loser side in the second world war, hit by two atomic bombs, by the 80s, Japan has briefly become the world’s biggest stock market, representing 45% of the world index. Since then, it’s size was quickly shrank; today this number is only 8.4%.

If you look at the below chart, the dominance of the US in 2017 becomes obvious. The relative size of its stock market is larger than the rest of the world all together. As we see, times are changing, but at this point of time noting suggests that this dominance will be challenged at any time soon.


source: Credit Suisse Global Investment Returns Yearbook 2017


The point here is that we cannot just sit back and not monitor our investments at least from time to time. Those who only invest in index ETFs are in somewhat better situation. But tell this to a Japanese investor from the 80s (if Japanese index ETF would’ve existed then) and he might disagree.

Times are changing and nowadays even more rapidly. What will be the next upcoming industry? Virtual reality? 3D printing? Space travel? Hard to say. But those who can identify these changes in time will surely be successful.

If you find these historical trends interesting, you can find more detailed facts, even country by county analysis in the 2017 Investment Yearbook of Credit Suisse. I have also referred to it in an earlier article about stock and bond returns and I personally find it a very interesting read.

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