A recent newsletter from John Mauldin illustrated graphically how the fundamental principles underlying significant developments can be lost sight of by future generations, leading in due course to some disastrous outcomes for voters many years later - the curse of the law of unintended consequences!
Mr Mauldin's example is based on President Roosevelt's introduction of the Social Security Act in the US in 1935. What fascinated me was that in 1930, average life expectancy was 61 years and the legislation introduced a state retirement age of 65. These ages compare with current average life expectancy of 79 years.

It is no wonder that government finances are in such a mess, much of it caused by failing to recognise a key principle underlying the retirement age set for a state pension in the original legislation compounded by governments failing to put aside assets to meet the future liability. Now that the enormity of these two failures (particularly in combination) is being more openly recognised, individuals will have to pay much more attention to how they fund old age. One component of the solution is going to be to retire later, and another is going to be increased saving. I believe that another component will be to return to the norm of many decades ago of having more generations living under one roof, which is a much more economically resilient way to live.

Under the scenario described above, there will be increased motivation for investors to earmark part of their savings to equity investments with sustainable long term growth potential. My view is that finding such investments is most simply accomplished by looking for companies which have developed a solution to a widespread fundamental need, rather than looking for companies seeking to achieve growth based on discretionary expenditure. Of course, there will be examples from time to time of huge successes amongst the latter but they are much harder to predict significantly in advance of success being achieved.
An example of an interesting growth company reporting last week is Dillistone. The company produces software for use by the executive search industry internationally. Key features which appealed to me when I first met the company were:

  • it was founded in 1983 by an executive search consultant who saw the opportunity to harness software to help manage the process of executive search.
  • executive search is proving to be a growth market, partly driven…

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