Abyss gazing

“…Now, release your anger. Only your hatred can destroy me.” (Darth Vader)

A vital part of successful investing is dispassion. Unfortunately, this goes against our hardwiring – much that was useful in our species’ survival over the millennia gets us into trouble in modern markets. Awareness of how emotion can warp and clutter our perspective on the world around us certainly helps. However, keeping a lid on those same emotions is another matter in the world we live in.

The image of us reflected by the social media algorithms we have (indirectly) trained is not flattering. Landing us simply requires a hook baited by the promise of rage and disgust. Even without such bleak media incentives, there is more than enough spleen-bait to go around. This week, we attempt some orientation in amongst the continuing sound and fury.

The problem of new

We can start by acknowledging that the policy choices of bad, mad or plain unpopular leaders can have positive effects, even if by accident. The reverse is also regularly true. In such a context, locating the thinking space between ‘sane washing’ and hysteria is particularly fraught. Our ‘tribe’ and its carefully refined echo chamber will be telling us to link undesirable individuals with bad outcomes and vice versa after all.

We also have to accept that the line between creativity and disobedience is fuzzy at best, particularly when viewed from the future. Future progress will, as it has before, depend on our collective ability to disobey and challenge chunks of the current status quo. What parts of the current consensus will our future selves look back on as dated and crusty?

Changing language can be instructive. Up until the late 1500s, the word ‘new’ was indelibly linked to heresy and deceit¹ – the wisdom of the ancients was prized above all. The movable type printing press had begun to provide the spark for systematic knowledge production from proliferating European universities.

‘New’ began to have more positive connotations for Europeans, perhaps supercharged by the obvious possibilities presented by the ‘discovery’ of the new world. By the late 16th century, the word becomes ubiquitous in publications on astronomy, natural history, chemistry and beyond. Many see all this as important building blocks for subsequent economic take-off.

Challenges to existing orthodoxy will almost always rankle. Most of us are, by definition, invested in the status quo in varying degrees. Our accumulated learning and life experience is a sunk cost which we are understandably reluctant to fritter at someone else’s insistence. That is particularly the case when that someone else comes from a (very) different tribe.

Perspective

As investors, we can take some reassurance from the fact that much of the growth process operates beyond the reach of tactical policy levers. A good example of this is the UK’s performance in the 1950s and 60s, as brilliantly dissected by one of Britain’s greatest economic historians.²

Relative economic growth suffered from a range of ills, some a hangover from the necessities of wartime production, others more avoidable. However, in absolute terms, it was an attractive array of new technologies and their commercial application that drove strong productivity growth across the developed world, the UK included. The UK lagged its major competitors in Europe and the US, but still enjoyed a golden age of sorts in spite of the best efforts of policymakers (Figure 1).

Figure 1: UK productivity growth picked up after the late 1970s

Source: OurWorldInData.org, Barclays

Interestingly, some would point to³ the joining of the European Economic Community in 1973 by one of the least popular post-war Prime Ministers as a relative turning point. Exposing Britain’s then famously flabby corporate sector to competition from the technological frontier in Germany and France was an important part of returning relative pep for the UK in the late 1970s and 80s – although this is obviously not universally agreed upon!

What to do?

Even for those with access to teams of specialists and seasoned investors, the current moment is disorienting. For individuals without these advantages, the blizzard of incoming noise can be paralysing.

Ultimately, we can take the temperature down by raising our eyeline a little. The world as it stands now is already roughly reflected in the world’s asset prices. It is the world as it will be in a decade or more that will matter for your long-term saving and investment goals. Over this time frame, the changing technological paradigm and how well you have diversified your investment exposure are likely to be far more important factors than whatever tops the news today.

Mealy-mouthed as this latter bit will sound in a world addicted to cut-through and conviction, we cannot possibly know the investment winners and losers of the next decade from our current vantage point. It is at least conceivable that the jarring mix of hubris, insecurity and threat hype on show in parts of the US commentariat could signal the beginning of the end of the American century.

Or maybe this is just part of the process of dynamic re-invention the world’s most important capitalist economy has repeatedly demonstrated on the way to another century of global dominance. Humility and dispassion will continue to be useful traits for investors either way.