I recently had the wonderful opportunity to spend three days rafting through the Grand Canyon with friends. If you ever get the chance to do this, don’t pass it up. It was an amazing experience. Geologists estimate that the Grand Canyon is some 70 million years old. Although it’s always changing, that change comes very slowly over millions of years, so it’s largely the same as it was at the dawn of human civilization.
The lack of light pollution in the wilderness makes stargazing easy and marvelously different from what we are normally used to. One evening, while watching the night sky, we were suddenly astonished to see a train of some 40 or so bright lights moving slowly but steadily overhead. Following a brief interval, another 60-some lights passed over. The experience raised the hair on the back of my neck. Someone explained that these lights are low Earth orbit satellites, launched by Elon Musk’s SpaceX. The satellites are part of something called Starlink, a project to launch many thousands of satellites into orbit to achieve universal internet access. SpaceX hopes to use the profits from this business to fund eventual missions to Mars. This, is human progress!
So, why discuss this in a newsletter on investing? Because progress and wealth creation go hand in hand. Investing, especially in stocks, is a long-term proposition and much of your willingness to own equities should depend on whether you believe progress will continue. If it does, markets will likely continue to reach new highs, if not tomorrow then in 5, 10 or 20 years. The contrary is equally true. If you don’t believe progress will continue, then wealth creation, and the markets, are likely to stall.
I just finished reading Ten Global Trends Every Smart Person Should Know: And Many Others You Will Find Interesting by Ronald Bailey and Martin L. Tupy. The book lays out evidence that, by objective measures, the world is not only a better place than it’s ever been, but it also continues to get better, faster. Some highlights:
Life expectancy has been on an almost constant upward march since the beginning of the industrial revolution. In 1701, life expectancy was approximately 37 years. Today, it’s closer to 82. Satellite data show that total global forest area has been expanding since 1982. Surprisingly, natural resources are becoming cheaper and more abundant. Average IQ test scores have increased by 30 points over the last 100 years. Vaccines are saving lives. In the 20th century alone, smallpox is thought to have killed between 300 million and 500 million people. It has now been eradicated. Cancer death rates have fallen every year since 1991. Famines have all but disappeared outside of war zones. The global absolute poverty rate has fallen from 90% in 1820 to 8.6% today. Democracy is still rising. Most of the world is healthier, better fed, better educated, more literate and has more free time and entertainment options than at any time in human history.
Of course, problems never end. Climate change, nuclear conflict and marine pollution, to name a few, are serious contemporary concerns. And solutions beget more problems, often unanticipated ones. But the lesson of history is that the ingenuity of humans to solve the problems of today and the future is real. It’s easy to argue that if newspapers came out every 50 years, as opposed to every minute on our smart phones, the headlines would be almost universally positive.
The Stock Market
Based on the progress outlined above, optimists are clearly on firm ground. In the long run, your base assumption about the stock market should be positive, even if we don’t know what will happen tomorrow or the next day. The ride will inevitably be bumpy and there can be prolonged periods of market declines before recovery and eventual advances.
It is said that the best investors marry the vital ingredients of short-term pessimism (often contrarianism) with long-term optimism, keeping one’s emotions grounded. Short-term pessimism prevents one from becoming greedy and euphoric. Conversely, long-term optimism keeps one from falling victim to fear and despondency.
So, the next time you’re at a dinner party and someone starts to tell you all the reasons why the world is going to hell and the market can’t ever rise further, smile and nod, but know that the facts are not on their side.