It is hardly surprising in recent times that there has been considerable volatility in the bond and equity markets; turn on the television, listen to a politician or open a newspaper, and there is a good chance you’ll see someone prophesying imminent economic doom.
Such claims serve to depress stocks (and bonds) in the short term, but they do also provide opportunities in the long term, the expected future return of the market is always greater after such falls, no matter how counter-intuitive that might seem.
Optimism
Kevin Kelly, the founding editor of Wired magazine, wrote in his essay The Case for Optimism that: “The psychological temperament of an optimist is not a sunny disposition or a Pollyanna delusion that everything is ideal. Rather, optimists believe that bad things are produced by temporary causes that can be overcome, while pessimists believe bad things always happen, and if anything good happens, it’s temporary.”
Optimism is always essential in long-term investment but especially in periods of drawdown (market falls). It gives us the chance to discern signals from noise and identify the gap between perception and reality.
Looking ahead
Entrepreneurialism and societal progress require a great deal of optimism because it reminds us of what is possible, and it helps us to imagine what the future might look like.
In 1889, Charles H. Duell was the Commissioner of US patent office. He is widely quoted as having stated that the patent office would soon shrink in size, and eventually close, because……..wait for it -
“Everything that can be invented has been invented.”*
Charles H. Duell*, 1899
How could anybody be so short-sighted, particularly after the motor car had only been patented by Carl Benz in 1886? Just think of all the inventions, innovations and advancements that were made after 1899 and throughout the 20th Century – the aeroplane, computers, space rockets, the mobile telephone, and the internet for example. With the advent of each of the above examples (and of course many others) entrepreneurs took risks, they sought investors, they employed many staff who then earned wages (on which they paid tax) and spent them in the economy, helping to perpetuate the virtuous circle we know as capitalism. It’s not a perfect system capable of leading to great inequality in the distribution of wealth, but it’s the best system we currently have and almost all advancements in living standards can be attributed to it. I am putting the creation of a welfare state to one side in this piece but that too must not be overlooked when reflecting on how we live today.
Charles H. Duell’s problem was that he wasn’t an optimist! The optimist in me says that capitalism, for all its faults, is likely to continue to drive invention and innovation and prosperity will follow.
Most of us would agree that there is still much to be invented and discovered. We tend to think these new ‘inventions’ will be more extraordinary and advanced than those which preceded them, but that might not necessarily be entirely true. An invention or innovation need not be revolutionary, or even unique, to be significant, many ‘new’ inventions are derivative of their predecessors.
From door locks to light bulbs, shovels to toilets, and the classic mouse-trap, innovation comes in many forms and from many directions, often right under our noses. Sliced bread? Bottled water?
Nothing is so basic, or so great, that it cannot be made better
Levi Strauss & Company studied their evolving customer along with their 501 iconic denim blue jean, created in 1873. Levi’s noted that the most requested alteration for tailors “around the world” were for hemming and tapering the leg of the classic 501. Thus, this year, Levi’s re-invented the classic blue jean with built-in “customization and tapering:” the new Levi’s 501ct.
First there were leaves, then hand towels, and then cloth rolls one would pull and reuse. (disgusting when you think about it…) Next was the ‘folded paper towel dispenser’ and in recent years the ‘hot air dryer’ replaced the towel dispenser.
And, now, Dyson has replaced the air dryer with their ‘Airblade.’ Anyone who thought no more money could be made from people washing their hands in public lavatories was very much mistaken! Sometimes the innovations that drive up living standards and create great wealth for their creators and their investors (that’s us by the way) are just simple improvements on what has gone before.
Take the following example:
According to Wikipedia, “Belts have been documented as an item of male clothing since the Bronze Age.” — Roughly, 2500 B.C.
And yet, Randa Accessories, which is the world’s largest men’s accessories company, selling over 40 million belts each year, opened its ‘Belt Lab’ in 2015 with the goal of doubling the size of the entire belt market.
Recent innovations include the reinvention of the holes in belts — now reinforced with ‘industrial-strength’ materials sandwiched between layers of leather, an improved ‘patent-pending’ reversible belt buckle technology (black to brown, leather to fabric, dress to casual), a new leather ‘stretch’ belt feature, new point-of-sale fixtures, new size, and colour replenishment modelling, and more.
To most of us, a belt is just a belt, a commodity, but to Randa it’s not; it’s much more than that, it’s a lifestyle accessory that can be refined adjusted and improved, seemingly endlessly, for greater profit!
Necessity can be the mother of invention, and/or innovation and it can be found in every facet of our lives.
In summary, we don’t need something as fundamental as a new internet to be invented every year for the stock market to go up and for investors to have a successful long-term investment experience, something Charles H. Duell would have done well to figure out.
I do hope the above makes sense but, as always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.
With kind regards,
Yours sincerely
Graham Ponting CFP Chartered FCSI
Managing Partner
* There is no documentary evidence he actually said this but I really hope he did!
