There are a myriad of important political, social, economic, and healthcare issues that are plaguing our globe today. But I am still long-term optimistic on the stock market.
This is because I still see so much potential in humanity. There are more than 8.0 billion individuals in the world right now, and the vast majority of people will wake up every morning wanting to improve the world and their own lot in life. This – the desire for progress – is ultimately what fuels the global economy and financial markets. Miscreants and Mother Nature will occasionally wreak havoc but I have faith that humanity can clean it up. To me, investing in stocks is ultimately the same as having faith in the long-term positivity of humanity. I will remain long-term optimistic on stocks so long as I continue to have this faith.
What helps me keep the faith is also the existence of other factors that provide fertile soil for mankind’s desire for progress to flourish. In his excellent book, The Birth of Plenty, the polymathic William Bernstein (he’s a neurologist as well as finance researcher) explained why the pace of global economic growth picked up noticeably starting in the early 1800s; Figure 1 below shows the unmistakable growth spurt in global GDP per capita that started, and continued on, from that period.
Figure 1; Source: The Birth of Plenty
Bernstein wrote in his book that there are four necessary factors for economies to advance over time:
- Respect for property rights: Entrepreneurs and business owners must have confidence that the rewards from their efforts will not be unduly confiscated
- Broad acceptance of the scientific method for investigating how the world works: The foundation for innovative ideas is a useful intellectual framework
- Easy access to capital: Without funding, even the best business ideas will be starved of fuel to take off
- Methods for rapid and efficient transport of ideas and widgets: Great ideas and products will be unable to find their appropriate audience in time without reliable and fast transportation
Without any of these factors, economic growth can’t proceed. From my vantage point, all four factors are firmly in place in large swathes of the world, especially in the USA, the world’s largest economy. This is a strong reason for optimism for global economic growth to continue powering on in the years ahead. So, the only time I will turn pessimistic on the long-term returns of stocks is when they become wildly overpriced – and I don’t think this is the case today.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I currently do not have a vested interest in any companies mentioned. Holdings are subject to change at any time.