December 7, 2021

Last week marked ten years since the collapse of Lehman Brothers and the height of panic during the financial crisis. With those dark days behind us, it’s a good time to reflect on how far we’ve come. Our recovery has not been perfect, but it does show the remarkable resilience of America.

It’s hard to exaggerate just how serious the crisis of 2008 was. Some experts claim our economy was close to total paralysis — something far worse than the recession we experienced. Today’s strong economy shows just how successful America has been. While it may seem like our political and cultural divisions are crippling us, our economy tells another story — one of enduring strength.

The numbers are clear. Since the crisis, the stock market has tripled, unemployment has halved, and GDP is up something like 30%. American culture is globally dominant, our companies still lead in technology, and American assets — stocks, bonds, and real estate — are the investments of choice for much of the world.

Of course, we need to acknowledge the imperfections in our recovery and the real risks in our economy. Debt — government and household — is rising, and we never really solved the too big to fail problem that forced government to bailout a number of insolvent firms. Many complain that the recovery has unfairly favored the wealthy, corporations, and investors, leaving working people to struggle. There is truth in all these critiques, and I don’t know the solutions.

The ups and downs of the business cycle are a built-in feature of our system. We’ve now had ten years of sustained growth, and nobody knows how long that can continue. Statistically speaking, the next downturn must be coming. We can’t predict its arrival, but we know it has to happen.

Whenever that next recession comes, many people will wail about the sky falling. They always do. But history tells us that there’s no reason to panic. In fact, a recession is really an opportunity. Assets are on sale, and that offers a chance to turbocharge investment returns. To be ready, investors need to follow some simple rules.

Always beware of over-leveraging, especially in good times. Those with too much debt are the first to get wiped out in a downturn, and their distressed-asset sales enable outsized profits for more disciplined investors. Also, don’t overpay for an asset — make sure that the (local) demographic, economic, and business fundamentals that underpin real value make sense.

This fundamentals approach is how Alliance operates, and it has been very successful for us over the years. It’s a patient style of investing, and I think it’s a great match for America’s long-term strength. No matter what happens in the coming years, I’m confident that America will remain a haven of stability for investors and that Alliance will continue to deliver strong returns. The future is bright!

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