Progress

As I’ve written before, the stock market isn’t a casino. Many people who don’t understand its underpinnings, however, believe fervently that it is. And there are always speculators who mistreat the market like a casino – buying and selling at a ferocious pace with little knowledge of the underlying companies they are trading.

The stock market, used properly, is a wonderful way to invest in the brightest minds of our society and the hardest working, too. It’s also a terrific way to build wealth over time.

The stock market works because we humans – and particularly, we Americans, with our market-based capitalistic economy – push for newer, better, and faster ways to do things. While that sounds great, it’s not always easy.

Progress means change, but change is hard.

Here is one example.

Jay Leno, the comedian and former late-night talk-show host, wrote an article in 2022 for the Wall Street Journal, talking about electric cars. In the article, he made the following observation, “Remember, in the early 1900s, 500 tons of horse manure were dumped into the streets of New York City every day. Suddenly, the car comes along, and a puff of blue smoke in your face wasn’t so bad.”

Leno offers a wonderful reminder of how important perspective is. If you’re splashing through horse manure in the streets, it’s easy to see how you would cheerfully trade that for an occasional dusting of exhaust fumes.

It is also the perfect illustration of the grinding progress of humanity. Cars could do most things better and faster than a horse, just as the tractor negated the need for an ox or a mule. Cars undoubtedly represented progress.

But that didn’t make the conversion away from horses an easy transition.

In fact, Washington D.C. – not always the bastion of progress in our country – installed an outright ban on cars in 1896. The reasoning? Cars threatened the livelihoods of horses. As the Washington Post reported at the time, “The commissioners of the District of Columbia are determined that the horse whose occupation has so largely been taken away by reason of the use of bicycles shall not further be displaced by horseless carriage.”

Change is hard.

As long-term investors, we must cheer on such progress and accept the accompanying change. That process is the exact reason the stock market increases in value over time. It’s not magic. It’s math.

When you’re investing in stocks, you are really investing in human ingenuity. If you feel like we’ve created everything there is to create, the stock market won’t be a good investment. But if you believe, as you should, that your fellow world citizens will continue to create new and better things well into the future, the U.S. stock market is the best way to take advantage of that growth and untapped potential.

In a recent research brief by the CFA Institute, the authors made an insightful comment along those same lines. They wrote, “We cannot participate in the growth of the economy (outside our little personal corner of the world) without owning [stocks]. And the world economy will continue to grow as far into the future as the eye can see. There are no binding growth constraints other than the physical size of the planet, the resources within it, and the energy reaching it from the Sun. We are nowhere near reaching those.”

The conclusion is to buy stocks.

Not because it’s like a trip to the casino – where you could, but probably won’t, win big by betting on black or by hitting one last time on Blackjack – but because humans push for progress.

And progress proceeds unabated.