For someone supposed to be writing a daily note about investing, I seem to spend an enormous amount of time writing about politics, philosophy and economics. Friends joke that I tend to write depressive diatribes about governance failures in our beloved country, and still cheerfully end the note with the felicitous suggestion, “Happy investing”.

However contradictory all of this might sound, I would argue, perhaps a little lamely, that politics, philosophy and economics are as crucial to investing as the P/E ratio.

There is perhaps more overlap between PPE and P/E than most people appreciate.

To be honest, the fact is that I find PPE interesting and it seems that, particularly in SA, readers like it too because the note’s readership tends to rise sharply when the subject is political. I think that’s just South Africa for you; politics, in some ways, is SA’s lingua franca. It’s the subject about which everybody has an opinion.

Depressingly, too many people in SA, I suspect, think the role of government is much larger than it is and, even worse, much more important than it should be. It’s almost as though citizens are ceding their future to the State. And trust me, that is going to end badly. They would be much better advised to concentrate not on what the country can do for them, but on what they can do for themselves. (Sorry, JFK).

And one of those things is to concentrate on their investments.

On that subject, I was struck by some of the comments in BlackRock chairman Larry Fink’s 2024 annual letter to investors. I have to say, if you had the choice and you intended to be the head of the largest investment company that has ever existed, Fink might not be the name of the person you would choose. Fink technically means a snitch or a tattletale. Yet despite this nominative setback, Fink’s achievements as a CEO have been simply extraordinary.

BlackRock currently has around $10-trillion under management, which is remarkable enough on its own, but to add spice, it’s about 30% larger than its closest competitor, Vanguard.

Both are pretty young companies; Vanguard is around 50 years old but BlackRock was established as recently as 1988. BlackRock really grew by acquisition, and its acquisitions have been breathtaking, especially Mercury Asset Management in 2006 and Barclays Global Investors in 2009.

Fink was there from the start after becoming the youngest managing director of the investment company, First Boston, at the age of 31. He is now without question one of the most powerful figures in international investing, which is one of the reasons why his annual letter is so important.

BlackRock investors own a quarter or more of many of the largest US corporations. 

One quirk of BlackRock is that when the company went public in 1999, it was one of three companies to list on the New York Stock Exchange that day. The other two were television personality Martha Stewart’s media organisation and the parent company of World Wrestling Entertainment. Those two companies were far more interesting than a boring investment company back then. It’s different now. 

Fink’s annual letter is controversial, if you want to use that deceptive word, for two reasons: his focus on ESG investing and the related topic of climate change.

In 2019, he backed the idea of stakeholder capitalism, arguing that it wasn’t about politics and wasn’t about a social or ideological agenda. Stakeholder capitalism was about “mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.” 

There was something of a backlash, I suppose you could call it, with a few companies arguing this idea was a personal agenda of sorts.

I think it’s fair to say that lots of companies might have worried about finding their business methods under the microscope if anyone started down that track. Yet, it’s obvious Fink was also a bit misunderstood.

This was not a call for corporate socialism, but more a recognition of the often conflicting agendas involved in running a business and how managing those agendas well was increasingly a business differentiator.

Whatever the case, he now says he won’t use the term “ESG” because it’s been hijacked by both left and right.

Retirement investing

So this year he retreated to safer ground, talking about retirement investing, which of course is very close to the core of what his own business does.

He starts by pointing out how important capital markets are for ensuring that citizens retire in security and comfort. Through all the ups and downs of financial markets over the years, they have proved so much more powerful than bank savings accounts, or other forms of creating a nest egg, like investing in gold or cash. 

The extent of this difference is huge, as I think most investors now know.

On an annual basis, investing in a range of global stocks should earn you a return of around 30% more than you would earn in a bank account. Compounding that over a working lifetime, the difference starts to look pretty staggering.

The enormous prowess of capital markets is one of the reasons why the US is so powerful internationally: the country represents about 4% of the global population, but about 25% of the global economy.

Lots of countries have sought and are seeking to replicate the boldness of the US capital markets, most recently India, with some success. 

Fink himself points out that one of the reasons why the US rebounded from the 2008 financial crisis, for example, was precisely the relative strength of its capital markets. 

But for all that, there are potential problems ahead for both the US and the world. 

I thought the most interesting part of his letter concerned fear: 

“Arguably the biggest barrier to investing for retirement — or for anything — is fear,” he wrote. 

“In finance, we sometimes think of ‘fear’ as a fuzzy, emotional concept — not as a hard economic data point. But that’s what it is. Fear is as important and actionable a metric as GDP.

“After all, investment (or lack thereof) is just a measure of fear because no one lets their money sit in a stock or a bond for 30 or 40 years if they’re afraid the future is going to be worse than the present. That’s when they put their money in a bank. Or underneath the mattress.”

In China, consumer confidence has dropped to its lowest level in decades, while household savings have reached their highest level on record.

In the US, 50% of young Americans are more likely to question whether life has a purpose than they did 20 years ago. Four in 10 Americans now say it’s “hard to have hope for the world”.

“I’ve been working in finance for almost 50 years. I’ve seen a lot of numbers. But no single data point has ever concerned me more than this one,” he writes. 

And this, I suspect, brings us back to the question of PPE vs P/E. Of course, Covid and its aftershocks have shaken everyone, but the fact is that politicians around the world have done a terrible disservice to hope over the past few years. 

One way to combat an excess of fear is to demonstrate the enormous utility of investing. So, never with more intent and conviction, may I just say… 

Happy investing. DM