Investing for the Future by Larry Burkett

1

The Economy

 There is virtually no way to write a book on investing
 without first discussing the economy. After all, what is
 an investment except an idea to make money? If that
 idea is not matched to the economy it is almost certainly
 doomed to failure. For instance, an investment of $1,000 in
 the Ford Motor Company in 1912 would have grown to nearly
 $12 million by 1950. Inflation consumed about half of its buy-
ing power during the intervening years, so an investor in Ford
 was left with a mere $6 million on which to retire. Not a bad
 deal.
 The equivalent investment of $2,000 in 1950 in the same
 stock would have been worth about $50,000 in 1990. Still not a
 bad return, except that inflation would have eroded its buying
 power to about $10,000. Clearly the economy had a major
 effect on the value of investments made in the early and latter
 part of the twentieth century.
 What might you have done with your $2,000 in 1950 to
 improve your retirement income? You might have guessed
 that the world would have a computer revolution in the next
 40 years and invested your money in IBM. If you had pur-
chased $2,000 worth of IBM common shares in 1950, your
 investment would have grown to nearly $700,000 by 1990.
 Or you might have chosen a new investment idea called a
 mutual fund. This is a plan in which many investors pool their

assets and invest in a wide spectrum of stocks or bonds. Sever-
al of the top funds would have yielded a return of nearly $2
 million on your original $2,000.
 Or you could have invested in Symmetries Engineering (as I
 did in 1959) and watched your stock value go from $2 a share
 to $30 a share in just four years, only to plummet to zero five
 years later when the Japanese entered the electronics
 business.
 Now that we have established that the economy has a direct
 bearing on which investments do well or poorly, I would like
 to give a short refresher course on how our economy operates.
 Prior to the twentieth centuiy our economy operated by
 what was called monetarist, or free market, economic theory.
 Simply put, monetarist theory means that the government
 plays little or no role in determining the direction of the econ-
omy. Prior to this century if the economy slumped into a
 recession (or depression), the government did not feel com-
pelled to step in and bail it out. Nor did the average American
 expect direct government intervention. After all, if private
 businesses caused the problems, they should solve the prob-
lems, right?
 Prior to this centuiy, no Americans drew welfare from the
 government. No farmers were paid not to grow food. No
 homes were subsidized by government loans, and the "home-
less" who wouldn't work were called "bums." One side benefit
 of free-market economics was that Americans were allowed to
 keep 100 percent of what they earned. Taxes were collected
 through the sale of goods, through tariffs, not income confis-
cation. Governments ran lean and efficient; because if they
 didn't, they shut down.
 A NEW THEORY OF ECONOMICS
 World War I made an indelible impact on this nation. From
 an isolationist country we emerged with much more of a glob-
al mentality. Certainly that was true where economics was

Investing for the Future by Larry Burkett