Sometimes I still dream of Norway ...

The opportunity for a sensational headline was clearly too tempting to pass up. “Norwegian sovereign wealth fund posts billions in losses,” read the headline on October 24 on the website of the Austrian national public broadcaster orf.at. The fund's losses in the third quarter did in fact amount to almost 32 billion euros. A selectively negative development. The breathtaking success of the Norwegian idea, however, was conveniently omitted. We will not do that.

When one of the world's largest oil fields was discovered in the North Sea in 1969, a new era dawned for Norway. The country could have followed the example of other countries and spent the surprising wealth frivolously. But such behavior was alien to the Norwegian mentality. In 1990, Parliament passed a law that eventually led to the establishment of the “Government Pension Fund Norway”. In 1996, the first petroleum revenues flowed into the fund to provide for the day when oil reserves would run dry. 

The fund's assets totaled 172 billion crowns* in 1998. Today that figure is an astonishing 15,000 billion - 87 times the value of 25 years ago. This corresponds to 1,270 billion euros or 240,000 euros per capita. 

Frugality and investing

I do understand that we in Austria feel a tinge of cheap schadenfreude when the fund’s value shrinks in the short term. It gives us an excuse for never having set up anything comparable. Granted, we lack fortuitous natural resource discoveries to tap into. But why do I doubt that even if we did, we wouldn't have taken Norway’s path?

In any case, we can all learn something from Norway. The combination of frugality and investing can produce magical results. Not in every quarter and not in every year. But always in the long term. 

The Norwegian sovereign wealth fund is 70% invested in equities. Due to its size, it now holds shares in 9,228 companies. On average, this represents 1.5% of all listed companies worldwide. Few investors in continental Europe have such a high proportion of equities in their portfolios. In Austria, unfortunately, the majority still associates buying stocks with gambling and not with entrepreneurship. 

Every year, money flows into the Norwegian sovereign wealth fund, and investment returns now comprise an even larger share of total growth. It is not a question of how the stock market will develop in the next quarter or year. Rather, it is a matter of steadily investing in successful companies through high savings rates. A prime example of the power of investing over long periods of time. 

*The Norwegian sovereign wealth fund offers great transparency. All information is well presented on nbim.no. In the annual and semi-annual reports, interested readers can find details on investments and performance.