October 1, 2022

I hope you spend Labor Day weekend enjoyable on the park, the pool or the seashore. I do know I’ll spend an excessive amount of of it keeping off questions from family and friends about when the inventory market will lastly get better.

With inflation nonetheless flaming and with U.S. shares down 4% in August and 16% up to now this yr, plenty of individuals all of the sudden appear to be asking whether or not we’re in for a repeat of the depressing markets of 1966-82.

I don’t assume so, however the most effective traders at all times contemplate the worst-case eventualities. And market eventualities don’t get a lot worse than the stagflationary interval that started in the course of the Vietnam Conflict.

On Feb. 9, 1966, the Dow Jones Industrial Common closed at 995.15. On Aug. 12, 1982—16 ½ years later—the closing worth of the Dow bottomed at 776.92.

That 22% decline doesn’t embody the constructive impact of reinvested dividends—however, in these days of excessive brokerage commissions, most individuals didn’t plow their dividends again into extra shares.

Worse, inflation averaged practically 7% yearly over that interval. Traders in shares and bonds alike misplaced floor towards the relentless rise in the price of dwelling.

Stagflation—through which financial progress stagnates whereas inflation runs scorching—is cruel. Researchers at Robeco Institutional Asset Administration in Rotterdam just lately discovered that from 1875 by means of 2021, shares misplaced a median of practically 17% yearly, after inflation, throughout stagflationary intervals.

We have to understand, although, that after we look again on the previous, we don’t recapture it; we reconstitute it. We flip it into one thing it by no means was: clear from the beginning.

The stagflation of the previous, so apparent to us now, was ambiguous then.

The speed of inflation fell sharply in 1971-72 and once more in 1975-76 earlier than going bonkers in 1979. Financial progress was flat in 1970; it went unfavorable in 1974 and 1975 and once more in 1980 and 1982, however exceeded 4% in 5 years of the Nineteen Seventies.

The time period “stagflation” didn’t even seem in The Wall Road Journal till April 1973 (though it was evidently coined by a British politician in 1965).

Like a funhouse mirror, hindsight distorts different details.

Understanding at present that the worth of oil exploded over that interval—crude went from beneath $3 a barrel to greater than $39 between 1966 and 1980—you would possibly anticipate that the power business dominated the record of the best-performing shares of the time.


Certain, a couple of, resembling Texas Oil & Fuel Corp., Southland Royalty Co. and Gearhart Industries Inc., had been among the many high performers.

The one-best performing inventory between early 1966 and late 1982, nevertheless, was Tandy Corp. (later often called RadioShack Corp.). In line with the Heart for Analysis in Safety Costs, Tandy returned 14,175% over that interval.

The second-biggest winner? O’Sullivan Corp., a plastics producer that additionally made rubber shoe heels, returned 4,820%.

Not far behind had been media and leisure big Harcourt Basic Inc., up 3,196%; theater, tobacco and insurance coverage conglomerate

Loews Corp.

, up 3,190%; and retailer

Home of Materials Inc.,

up 2,916%.

Amongst these largest winners, solely Loews remains to be publicly traded, though a couple of shares decrease on the record of high performers, together with

CVS Well being Corp.

(up 2,005%) and

Altria Group Inc.

(up 1,738%), nonetheless exist.

CVS, nevertheless, wasn’t an enormous drugstore chain then. It was a part of Melville Corp.—the second low cost footwear and attire retailer, together with Scoa Industries, close to the highest of the record.

Say what?

A lot of the corporations that turned out to be the “superstocks” of this stagflationary interval don’t appear to have had the flexibility to foist rising prices onto their prospects with out dropping enterprise.

That’s what skilled traders name pricing energy—and standard knowledge says it’s what corporations will need to have to prosper amid stagflation.

Actually Altria Group, then Philip Morris Inc., had pricing energy: People who smoke typically don’t resist paying extra over time for one thing they’re hooked on.

Additionally, merchandise like tobacco and flicks provide comfort in powerful occasions. Alcohol and sugar corporations did effectively, too.

Many different stars of that stagflationary time inform a unique story, although.

Tandy’s TRS-80 desktop microcomputer was one of many first private computer systems to hit the market. In a Wall Road Journal commercial for the TRS-80 in 1978, Tandy emphasised its “affordability” at $599; by 1980, a much more highly effective model price simply $699.

An commercial for Tandy’s TRS-80 in The Wall Road Journal from Sept. 8, 1978.


Wall Road Journal commercial

Between 1976 and 1982, Tandy’s earnings roughly quadrupled—not as a result of it had pricing energy, however as a result of its enterprise boomed in a stagnant economic system.

In the meantime, Home of Materials, which offered stitching machines, textiles, “notions” and different low cost tchotchkes, additionally had little pricing energy—however raked in money anyway as shoppers, reluctant to purchase new garments at ever-climbing costs, took to mending outdated ones at house.

Right now, nearly each brokerage and asset-management agency round is flogging the concept that shares with loads of pricing energy are the panacea for stagflation.


Have you ever adjusted your funding method since you anticipate a protracted interval of stagflation? Why or why not? Be a part of the dialog beneath.

However the value you pay for pricing energy issues—loads.

The market has already despatched such shares to the moon. Healthcare corporations

Centene Corp.


UnitedHealth Group Inc.,

which funding professionals extensively admire for his or her capacity to cross alongside value will increase, are up greater than 10% and 5% this yr, outperforming the broader market by greater than 20 proportion factors.

Veteran investor Shelby Davis, whose New York Enterprise mutual fund thrived within the Nineteen Seventies largely by shopping for low cost insurance coverage and different monetary shares, says that as an alternative of chasing the newest fad, “diversification might be the most effective reply proper now.”

He factors out that insurance coverage and financial institution shares are once more less expensive than the remainder of the inventory market.

Historical past by no means repeats itself precisely, however you’re extra more likely to defend towards stagflation by shopping for what’s low cost than by shopping for what’s already inflated.

A take a look at the markets reveals asset managers are transferring cash round in ways in which recommend they see a recession coming. WSJ’s Dion Rabouin explains what to search for and why they inform us traders are more and more pricing in a recession. Illustration: David Fang

Write to Jason Zweig at intelligentinvestor@wsj.com

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