Failing Upwards

What drives US markets?

Source: Bloomberg

Over the years the stock market in the US has generated significant real returns – better than most other markets around the world. Since 1994, US equity markets have returned 5.4% above inflation, while the rest of the world has averaged only 2.3%. Why?

One reason has to do with the way we treat failure. The US has a very liberal bankruptcy regime. When companies can’t pay their debts, we allow them to stay payments to their creditors and reorganize. Sometimes that means that the company continues, like the Chicago Tribune. That paper keeps coming out, despite going through Chapter 11 bankruptcy proceedings in 2007. By contrast, after Lehman Brothers collapsed, its assets were sold and the company was liquidated.

In both cases, managers were fired and unproductive assets were freed to be put to use in a more productive way. This includes buildings and equipment, but it especially includes people. When people are stuck working for “zombie companies” that have been propped up through subsidized loans, they can’t work to their fullest potential. Japan’s business sector is famous for having “company men” who draw a salary for doing nothing more than show up and read the paper. What a waste!

Failure isn’t truly failure if we learn from it and put our time and efforts to more productive use. That’s why the startup culture in Silicon Valley rewards folks who are on their third or fourth attempt. Winston Churchill put it best: “Success is not final, failure is not fatal: it is the courage to continue that counts.”

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:56+00:00 May 26th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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