To the Point by Jack Bobo
We live in a fast world today, and it is easy to lose perspective in terms of some of our most important decisions. For that reason, I believe it is important to occasionally look back over the road that has been traveled to take some measure of how progress has been achieved.
But it is also important in doing so not to become chained to the past or to expect the past to be revisited. The past is past, but we can learn from it.
I recall in the early 1960s the vice chairman of the board of a major financial corporation telling me that he had sold his brownstone home in Manhattan because he was convinced that the good times could not last and we would soon re-enter the Depression of the 1930s. He expected that the tidy profit he had made from the sale would see him through the rough times he envisioned for the future.
Well, he was dead wrong. If he had kept the brownstone until he died some years later, it would likely have quadrupled in value. Being mindful of the past is not a signpost for the future, but it can help keep things in perspective–providing a balance between how far and how fast we have traveled and providing expectations for the future.
The year 1924 was a great one in my life, primarily because it was the year I was born. It was also great because it produced many notables who have in one way or another impacted our lives. Joining me in starting life in 1924 were Presidents George Bush and Jimmy Carter, along with Chief Justice William Rehnquist. Joining from the world of theater were Lauren Bacall and Marlon Brando, and from corporate America, Lee Iacocca. Leaving the world in that year were President Woodrow Wilson and Russias Vladimir Lenin.
Songs popular in 1924 were “Fascinating Rhythm,” “Indian Love Call” and “Ill See You in my Dreams.” Some of these are still playing, and I wonder how many of todays hits will be remembered 78 years hence. A popular movie was entitled “Thief of Baghdad” and thats still playing in a sense, but in a different context.
Two popular inventions of 1924 were Kleenex and the loudspeaker. Boy, did they ever have an impact upon life. Kleenex was probably among the first, it not the first, of our “throwaway commodities.” At times, I am sure, most of us would also like to throw away the loudspeaker.
In 1924, the average income was $2,196; the price of a new car was $265 and a new house was $7,720. A loaf of bread cost 9 cents, a gallon of gas, 11 cents and a gallon of milk, 54 cents. The Dow Jones average that year was 100. Life expectancy was 54.1 years.
Well, time passes and it is 1952, time for my son, Glen, to be born. Things have changed, but not much considering that we had weathered the Depression and World War II and were facing the Korean conflict. Average income was $3,850, a new car, $1,754 and a new house still only $9,075. A loaf of bread could be bought for 16 cents, a gallon of gas for 20 cents and a gallon of milk for 97 cents. The Dow Jones was at 270 and life expectancy was 68.2 years. The minimum wage in 1952 was 75 cents an hour (there was no minimum in 1924).
From the foregoing, it is pretty obvious that my parents had few options during the years that I was growing up. Very few people were able to save in the stock market and insurance needs were only slightly impacted by rising costs. And this was probably offset by increased life expectancy.
But planning for my contemporaries and me and for my son and his generation has become significantly more complex. The $9,000 house of 1952 is now replaced by one costing $150,000 to $250,000, and the price of everything else, except perhaps milk, has grown by many multiples. But then again, we have many more options today, largely because of increases in discretionary income.
But discretionary income should not become “throwaway” income; rather, it should be used wisely with more thought given than is often the case. With that in mind, I was particularly struck by the growth of the Dow Jones average, going from 100 in 1924 to 270 in 1952. This was a period when the true value of a corporation was measured by its earnings and its ability to pay dividends to its shareholders. Can the same be said of corporations today? Despite the proclamations by todays pundits regarding fundamentals, I believe the answer is no.
In 1996, the Dow Jones Industrial average stood at 5,033. In 2000, just five years later, it reached a high of 11,723–an increase of almost 6,700.
Did businesses really earn the kind of money that would have increased their net worth that much in such a short period of time? Today I believe most would agree that the answer is no. At least one wise investor, Warren Buffett, believes prices of many companies stock are still too high.
The problem as I see it is that too many exercised the same option with their savings dollar, thereby inflating the value of that option. Perhaps a bit more perspective about the road traveled would have raised questions regarding those rosy predictions, thereby lowering unrealistic expectations.
Our fast pace today also has a lot to say about life insurance. As income and the cost of lifes necessities rise, we must shake loose from the 1924 mentality of buying for todays needs and look to what those needs may be 10 or 20 years from now.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 11, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.