For those of you who would prefer to listen:
I was chatting with a friend of mine this week about all of the issues going on around the world. I do that a lot. I like to learn how other people think. Gathering information and broad perspectives is a valuable tool. Our home state almost always comes up in conversation. California has become a bit of a lightning rod of late. People seem to either love it or hate it. Realistically, it’s kind of always been that way. I’m not going to get into the politics of California. That’s not my role. I have zero interest in that. But as a 5th generation Californian and an investment professional, I take pride in the significance of the Golden State.
We concluded: People that aren’t from California will never understand how much people from California love California. It’s definitely a thing. Of course, there are plenty of problems and issues with our state which is frustrating and irritating. But just when you think you don’t like California anymore, you visit another place or someplace beautiful within the state and realize that California is like no place else. Despite its flaws, California is a special place on Earth.
The state of California generated over $4 Trillion in GDP last year. It eclipsed Japan, making it the 4th largest in the world, if it were a standalone nation. Think about that for a second. Only the United States, China and Germany are larger. Of course, California accounts for a large slice of America’s economic output. California also grew faster than the top 3.
California has long been a magnet for people seeking their fortune. The discovery of Gold at Sutter’s Mill on the South Fork of the American River in 1848 ignited a frenzy. People from all over the world flocked to San Francisco and made their way up to the foothills with dreams of striking it rich. They were called 49ers. It lasted well into the 1850s. Word didn’t travel as quickly back then. But it sure did travel quick for back then. It was the wild, wild west.
The Golden State is fertile ground for ideas. It’s full of energy and ingenuity. Very few found fortune mining for gold. But innovative thinkers saw great opportunity well beyond those pans in the river rock. A German immigrant named Strauss saw a need for durable clothing during the gold rush. He made denim pants. His name was Levi. A guy named Studebaker came out west and built wheelbarrows for the miners. He accumulated wealth and returned to Indiana to build cars. Two friends named Henry and William saw the opportunity to provide banking, mail, and express delivery services. Wells Fargo was founded in 1852. Their stagecoaches spread throughout the region, symbolizing the spirit of the West.
The Golden State is fertile ground for food. California feeds the nation. It has the “Salad Bowl” in the Salinas Valley and the “Bread Basket” in the San Joaquin Valley. California is the top-producing state in agriculture, with half of the output coming from the Central Valley. California also has the Wine Country, producing 90% of America’s wine. The Napa Valley is America’s wine capitol. This majestic area was cultivated by guys named Krug and Korbel, Mondavi and Beringer. Their names live on, found on labels today.
A young artist named Walt left Kansas City for Hollywood with some talent and plenty of creativity. California was his calling. It all started with a mouse. Disney was a thinker more than an animator; A visionary more accurately. He saw worlds of tomorrow that nobody else could see. And he brought them to life. Disney is rooted in the Golden State.
So many iconic companies and products began in California. The first McDonald’s burger. The first Lockheed plane. Standard Oil of California helped fuel the Golden State’s growth. It’s now called Chevron.
Silicon Valley is home to technological innovators that gave birth to the Digital Age. Hewlett-Packard was founded in 1939 in a garage. One of its first customers was Walt Disney. The first advanced semiconductor was invented by Robert Noyce at Fairchild Semiconductor in Palo Alto in 1959. Steve Jobs dared to think different and changed the world with the iPhone. Jensen Huang is leading the AI race, with the idea of Nvidia born at a Denny’s.
California has long been fertile ground for ideas and investment. It has the most Fortune 500 companies in the country. But recently, some have left. Chevron. Schwab. Oracle. Tesla. They were all born in California. But they left, moving to Texas, considered more friendly to business. This has to be said. I’ll add that the Raiders and the A’s left Oakland, with Las Vegas as the preferred place. That hurts. California needs to re-engage its roots and have a clear understanding of the truth.
The Bay Area remains ground zero for Tech. San Francisco is widely regarded as the global hub for Artificial Intelligence. It has a deep concentration of talent. Stanford and Cal play a major role here. Last year, San Francisco captured nearly 25% of all US venture capital investment. Over $50 Billion flowed in. Much of it was directed at AI startups and innovation. Over half of the investments were directed at AI. That’s where the growth is. That’s been the clear driver of the Stock Market too.
Sports is Big Business. It just got bigger. The Los Angeles Lakers just sold for $10 Billion. They were purchased in 1979 for $68 Million. It’s the most lucrative deal in sports history. These are big numbers. To make it more relatable, the math equates to a $68,000 investment resulting in $10 Million. That’s a pretty nice return on the investment. But how about this: A $68 Million investment in the S&P 500 in 1979 would have grown to $10.7 Billion today. You don’t have to be a mogul to obtain wealthy. Oh, the power of compound interest.
For you young and aspiring investors, if you invested $1,000 in the S&P 500 at the end of 2015 and added $100 each year, your investment would be worth $4,628. If you keep doing that for the next 25 years, using an annualized compounded growth rate of 6.5%, you’ll have over $28K in 2050.
America has been through World Wars, Economic Crises, Global Pandemics, and civil unrest, to name a few. The Stock Market has seen it all. And it continued to charge higher, reaching an all-time high earlier this year. It’s not far from those highs today. Californian ingenuity and innovation have been powerful engines for that Stock Market growth. The benefits of long-term investing are indisputable. You just need the time and the patience. Albert Einstein said compounded growth is the 8th wonder of the world. Those that understand it, earn it. Those who don’t, pay it. Einstein was a genius. But you don’t have to be a genius to benefit from investing.
Bedell Frazier is a proud California-founded firm. We like to think that over the years we have implemented many innovative methods in our ever-changing, disruptive industry. We try new things and do things differently. I’ve often referred to us as a 40+ year-old startup. We are now in our 50th year. Bedell Frazier is invested in California. We are deeply rooted in clients first. For us, there’s no other way.
I can’t finish this piece without mentioning another iconic Californian: Brian Wilson. The leader of the Beach Boys passed away this month. Their music captured a generation in the 1960s, which has stood the test of time. The Beach Boys had a way of distracting you from the rat race of life and recreation. It’s feel-good music. Their album “Pet Sounds” was voted #2 all-time by Rolling Stone Magazine, only behind the Beatles “Sgt. Pepper’s.” I bet that surprised you.
I love the Beach Boys. I grew up with them. They bring back memories. They also help build new ones. Creativity with simplicity. The Beach Boys are as California as California gets.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
