I had to laugh at this ad (at the bottom) that’s been playing on the site here in the last few weeks. It says:
“THE END OF AMERICA – Blah, blah, some guys will sell you doom and glooom, sign up here so he can separate a fool from his money.”
Regulars know that I am a pretty optimistic person over the long-term. That is, I am a big believer that there are more people waking up in the morning saying “I want to be smarter and better than I was yesterday” than there are waking up saying “the world is doomed, I should build a bunker and hide out”. That’s just my general view of things. Maybe I am wrong, but I don’t think so.
More importantly, this is an incredibly powerful macro trend at work. It’s a trend that drives progress and output going forward. Obviously, there are more pieces to the puzzle than that, but you get the general trend. The Neanderthal who shorted Cro-magnon Man stock 30,000 years ago is sitting on hefty losses. Not just because he was dumber than Cro-Magnon man, but because Cro-Magnon man continued to progress at a faster rate due to this inherent desire to wake up in the morning and learn and grow within his/her surroundings (I just made a mockery of human evolution so feel free to lay into me if you have any historical expertise here – and yes, I know there is some historical record of Neanderthal and Cro-Magnon man intermingling, but my example doesn’t sound as emphatic if I say that).
Of course, betting all-in very aggressively on on progress over the long-term can be irrational. Yes, the Cro-Magnon man long bet turned out well, but no Cro-Magnon man lived the 30,000 years to cash in his/her bet. And there have been some pretty dicey times for our species over the course of this bet. Some lasting entire lifetimes or longer. So it makes it very difficult to plan for life around this uncertainty since we can’t know precisely how this powerful long-term trend will impact us in the short-term. There have been clear cases where persistent hard times last throughout our lifetimes. Unfortunately, the macro trend at work in these timeframes doesn’t always play out perfectly over the course of time when you actually need it to.
This makes it highly imprudent to wander through life just assuming that everything is going to turn out for the best. There’s a chance of pro-longed hardship and trouble over the course of much of your lifetime. And designing a portfolio and planning for the future has to take this into account. That doesn’t mean you turn into a permabear or build your portfolio around the end of the world and positions in gold, guns and bunkers, but it does mean you have to approach the world in a prudent manner that takes these risks into consideration. I say, be a pragmatic optimist. You don’t want to be the irrational bull or the irrational bear. But if you’re constructing a portfolio with an overweight against human ingenuity and progress then you’re likely to lose out over the long-term.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.