The Biggest Winners In The Stock Market Don’t Exist Yet

I got started in the financial services industry in 1984. Back then, I couldn’t imagine being in this business for 30 years. But here I am, it’s 2014, and the last three decades have been nothing short of remarkable.

On my first day at work, the S&P 500 stood at about 150 and the TSX composite was around 2000. As I write these words today, they’re at 1850 and 14,250 respectively.  That’s over a seven-fold increase in the Canadian markets, and an increase of more than 12-fold in the U.S. And those numbers don’t even include dividends, which have been dutifully multiplying like rabbits over the same 30-year span.

There’s little doubt in my mind that the next 30 years are going to be just as incredible and just as surprising for investors who are in it for the long haul. But this article isn’t about why you should ignore the short-term market perils so you can afford to eat in decent restaurants when you’re 80. It’s about the fact that the biggest winners your portfolio will ever see probably don’t even exist yet.

Deep down, we all know that if you want to get five, six or 10 times your money over the next three decades, you don’t need to worry about where the price of oil is going tomorrow, what the outlook is for China over the next few months, or what the GDP estimate is going to be in the next quarter. You just have to build a reliable and diversified investment portfolio and then hang onto it long enough to reap the rewards.

Sounds easy, right? In a way, it is. But like a lot of things–eating right, for example, or getting plenty of exercise–it can be a lot easier to say than to do, especially over the long run.

Let’s start with the notion of reliability itself. What exactly is a reliable portfolio? Taking a lesson from my past 30 years, a lot of the companies I thought would be setting the world on fire for the rest of my days ended up getting incinerated instead. For those of us in Ottawa, Nortel Networks certainly tops the list. But there are many other examples of once-mighty companies that no longer exist.

What’s more, many of the companies that are among the largest business enterprises in the world today either had no meaningful presence or didn’t even exist when I was entering my first orders. Facebook, Microsoft, Apple– the list goes on and on. Come to think of it, the Internet itself hardly existed in 1984. Not much need for Internet moguls before there even was an Internet.

As for those who think they can spot the next Big Thing before it appears, all I can say is that in the late 1980s, the White House commissioned a think tank of the world’s leading intellectuals and asked them to predict what the next great trends were going to be, trends that were going to rock the world. A lot of great ideas came out of that summit. Some of their predictions came true. Many others didn’t. But not one of those brilliant visionaries so much as mentioned the Internet.

The bottom line is that neither you nor I nor anyone else know what the next “Internet” is going to be, let alone which companies are going to benefit from it and which are going to get run over. The good news is that you don’t have to be a Kreskin-like stock picker to reap the rewards of the market. Broad-based instruments like low-fee index funds allow anyone to essentially buy all the market, from the smallest up-and-comers to the largest companies in the world. That way, you can avoid the risk of owning too much of a company that could be about to hit its past-due date, while also getting a piece of all those unknown small companies that are on their way to becoming tomorrow’s behemoths.

So the next time you’re watching the cable news and sweating over which stock is about to take off or what the market is going to do next week, remember: 30 years from now, it won’t make much difference. What will matter is whether you are reliably invested for long-term growth. If you are, and if you have a reliable portfolio and a solid process to keep you on track, maybe we can meet for dinner in 30 years to celebrate your success? Might I suggest a nice Cabernet to go with your filet mignon?

Alan MacDonald, an investment advisor with Richardson GMP Limited, helps investors with over $500,000 of assets make smart decisions about money. Alan is the co-author of “The Copperjar System, Your Blueprint for Financial Fitness” available on Amazon. Visit www.alanmacdonald.ca. Email Alan.Macdonald@RichardsonGMP.com.

All material has been prepared by Alan MacDonald, Investment Advisor at Richardson GMP Limited. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.  Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.