Is America just built different?

We’ve seen two significant anniversaries over the last few weeks.

One was the tenth anniversary of the Brexit referendum, while the other was the 250th anniversary of America’s Declaration of Independence.

One commemorates Britain’s decision to leave the European Union, while the other celebrates the birth of the United States.

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The two have little in common, but together they raise an interesting question for investors.

Why has one country spent the last decade debating whether it made itself weaker, while the other continues to dominate the global economy despite repeated predictions of its decline?

It’s also a reminder of one of Warren Buffett’s famous observations that has proved to be remarkably good advice.

“Never bet against America.”

The US economy hasn’t had an easy ride over the last 100 years, enduring the Great Depression, the turmoil of the 1970s, the dotcom crash, the Global Financial Crisis and the Covid pandemic.

More recently, it’s grappled with growing political polarisation, rising government debt and intense strategic competition from China.

However, it has consistently emerged stronger than many expect.

The innovation of Silicon Valley and the recent dominance of the Magnificent Seven spring to mind, but America’s success runs much deeper than its technology sector.

Some advantages are geographical, with the US possessing abundant farmland, natural resources and energy.

It is bordered by two oceans and relatively friendly neighbours, while the Mississippi River system and its tributaries have created the world’s greatest inland waterway.

Long before highways and railways, farmers and manufacturers could move goods very cheaply across much of the country, creating a vast, integrated domestic economy.

America also has more natural deepwater ports than any other major economy.

Its financial advantages are just as formidable, with the US home to the world’s deepest capital markets and the world’s reserve currency.

Entrepreneurs have access to funding on a scale few others can match, while failure is often viewed as a necessary learning experience rather than something to be avoided.

America attracts talented migrants from everywhere else across the world, while its leading universities have helped commercialise new technologies (such as artificial intelligence) much faster than other nations.

History is littered with predictions that America’s best days were behind it, but it has continued to adapt.

During the 1970s many believed rampant inflation would permanently damage the economy, while in the 1980s Japan looked on track to succeed at the expense of the US.

After the pain of the Global Financial Crisis in 2008, many believed an extended period of weak growth would follow.

As recently as last year, plenty of forecasters were expecting Trump’s tariffs to hit the American economy much harder than they did.

The US has reinvented itself several times through history, but investors shouldn’t ignore the risks it faces.

Government debt is on an unsustainable path, China represents its strongest strategic competitor in generations, while parts of its sharemarket are sitting at very elevated valuations.

These are genuine challenges, but Buffett never suggested America would avoid recessions or other economic pitfalls.

His point was that over long periods its unique combination of strategic advantages, as well as its culture of innovation and entrepreneurship would see it outweigh those setbacks.

The S&P 500 in the US has returned 10.9 per cent annually since 1990, including dividends.

During that period it’s experienced 17 declines of at least ten per cent, including two when it fell more than 25 per cent and another two where it was cut in half.

We’ve had four recessions, numerous wars, the September 11 terrorist attacks, the bursting of the dotcom bubble, a US housing crash, a global pandemic and the biggest inflation spike in four decades.

It’s recovered to fresh highs each of those times, rewarding investors handsomely for keeping the faith.

We spend a great deal of time worrying about the next sharemarket downturn or geopolitical crisis.

Those events matter, but the factors that determine long-term investment returns usually run much deeper.

Major political decisions can shape a country’s fortunes for years to come, and the tenth anniversary of Brexit is a reminder of that.

In contrast, 250 years of American independence suggest that economic success is built over generations.

The US is facing some challenges, but it also retains an extraordinary combination of advantages that few countries can match.

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