Change -- the Investor's Only Certainty, revisited

Last November, we wrote a blog post entitled, "Change -- the Investor's Only Certainty," which is well worth revisiting based on the developments of 2009 thus far.

In it, we refer to an essay which the late Richard C. Taylor kept through the years, and which had been written by his mentor, Mr. Thomas Rowe Price.

That essay, "The New Era for Investors," was written in June, 1968. It refers to several previous essays by Mr. Price, including one called "Change -- the Investor's Only Certainty," from June, 1966.

One theme of those essays was the impact that Mr. Price predicted that the policies of President Lyndon Johnson, America's 37th President whose years in office stretched from 1963 - 1969, would have on business and investment.

In "Change -- the Investor's Only Certainty," Mr. Price expressed his belief that the "increasing expenditures in fostering the Great Society will accelerate inflation. This will bring further socialization of industry, more government controls, and a probable increase in corporate taxes."

He also stated "The only way the Government of the United States can make good on its endless and countless guarantees of bank deposits, real estate loans, pensions, and all the various obligations of a welfare state, is by issuing more paper money. That is depreciated currency."

As we stated in our November post on those essays of four decades ago, these voices from the past are helpful first and foremost by demonstrating quite dramatically that "massive change is nothing new or unique to the present time." Investors today who are worried about change and uncertainty tend to forget that their parents or grandparents faced just as much change and uncertainty -- and yet looking back with the perspective of history we can see that there were also tremendous opportunities ahead of them, and decades of great prosperity in spite of all the errors that may have been made.

It is also noteworthy to point out the suggested course of action that was made in light of what turned out to be an accurate assessment of the dangers of accelerated inflation and increased business regulation and taxation.

First, among the description of "which stocks seemed best to own during the New Era" was the category "Science and technology." We have explained why this idea is so important, in previous posts such as this one on Clayton Christensen's theory of disruptive technology, or this one in which we explained that major technological paradigm shifts such as the one we believe is already beginning to take place are difficult to derail, even by government mistakes.

Second was a reiteration of the importance of seeking out "Small businesses with high rates of earnings growth." We have provided evidence from the record of the 1970s that this recommendation from these essays of 1960s turned out to be very sound indeed.

We also discussed in that post, among other places, why we have always emphasized the ownership of smaller, more innovative businesses. Other posts, such as the series entitled "Beautiful growth companies" discuss some of the ways of finding those kinds of businesses.

As those writings from the 1960s remind us, change is a fact of life for the investor. Just realizing that fact is beneficial to the investor today, who faces new changes -- and new and exciting opportunities. Perhaps the best way to end this discussion is with a final recommendation from Mr. Price, describing what he calls "the forward-thinking investor":

"He must be constantly alert. He must stick to the basic concepts which have proven sound over a period of centuries, be flexible of mind and be willing to change opinions, change tactics, and not stubbornly stick to old opinions and buck new trends, or try to swim against the tides."

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