To Inform:

My family and I attended a Columbus Clippers baseball game this week and as I sat there listening to the sounds of America’s pastime, I glanced at the sky and noticed a jet airliner on its climb out of Port Columbus. As the plane glided effortlessly through the hazy air my mind flashed back to stories of the Wright brothers (Ohio boys!) and their creation of the airplane. The airplane is just one of the innumerable world-changing inventions by Americans over our 250-year history. The hay baler, the automatic transmission, the banana split, air conditioning, hearing aids, the assembly line, and the paper towel are a few others, all of which occurred in the same decade as the invention of the airplane.

In recent years the idea of American exceptionalism has been debated and doubted amongst the chattering class of market observers. What these commentators forget is that American exceptionalism isn’t a stroke of luck or a recent phenomenon, it has existed since the beginning.

Rarely thought about, the patent system in the U.S. is one of the most important factors in why America has been and continues to be an exceptional place to live, work, and invest. From the Patent Act of 1790 when Thomas Jefferson personally investigated proposed patents to the Patent Act of 1836 which saw the creation of the U.S. Patent Office and beyond, the importance of invention has been a cornerstone of commerce in America. Abraham Lincoln, a patent holder himself, said it best: “The patent system…added the fuel of interest to the fire of genius, in the discovery and production of new and useful things.”

All this invention and creativity, the “fire of genius” as Lincoln called it, is an important factor in the success of the U.S. stock market since its founding at the signing of the Buttonwood Agreement in 1792. Historical data is difficult to find as reporting on stock market performance has evolved over the centuries. Work by Professor John McConnell of Purdue University does a fine enough job capturing the wealth creation of American exceptionalism over most of our history. A single dollar invested in common stocks in 1817 grew to nearly 13.5 million by the end of 2017. If we forward the tape through this year this figure swells to 42.2 million today.

Source: Mitch Daniels School of Business, Purdue University

In his same research, Professor McConnell calculated the 50 worst years for stocks. July 1882 through June of 1932 was the worst period on record, when 1 dollar invested accumulated into just 6 dollars. But the optimist still did well over that time frame. Had one simply invested an additional dollar each year, (for a total of 50 dollars invested) the ending value rose to $1600. This time period saw the end of the Gilded Age, a World War, and a great Depression. But, in the end, the American spirit is indomitable. The 50 best years began not long after the 50 worst ended. A single dollar invested in 1949 resulted in 542 by 1999. Adding a dollar every year resulted in off-the-charts returns of more than $20,000.

Source: Mitch Daniels School of Business, Purdue University

In the early 1830s the French sociologist Alexis de Tocqueville toured the United States. Upon traveling throughout the country, Tocqueville wrote in his book Democracy in America, “These people are magnificent. They will clear a forest, build a town, and establish a commerce in less time than it takes a European to make up his mind.” The industriousness, the creativity, and the audacity to dream have been woven into America since its founding. As long we can hold on to those things, I’m bullish on the next 250 years.

Written by Alex Durbin, CFA, Partner and Chief Investment Officer