Never bet against human ingenuity
Never bet against human ingenuity
The importance of staying fully invested in stocks and the illusion that you can avoid risk by buying "safe" assets
"Despite some severe interruptions, our country's economic progress has been breathtaking. Our unwavering conclusion: Never bet against America." - Warren Buffett
In a globalized world where Silicon Valley is a mindset rather than a location, never bet against human ingenuity.
The greatest force in this world is human ingenuity, and the best way to invest in human ingenuity is to buy a collection of great businesses. Most of the ones worth owning are listed on public stock exchanges around the world.
Investments in "safe" assets like cash, real estate, and commodities are, more often than not, long term bets against human ingenuity—bets that humans won't come up with new and better ways to fulfill demand, do their jobs, and live their lives.
Potential consequences of betting against human ingenuity by buying “safe” assets
1) Cash
The value of $1 has fallen 96% since 1913.
Meanwhile, the Dow Jones Industrial Average is up 69,247% since 1915.
Inflation and an expansionary money supply are necessary for governments to encourage spending, lending, and investment and reduce the real value of outstanding debts, particularly during economic recessions.
This is good for the economy but bad for savers who keep their assets in cash.
2) Real estate
Since 2019, San Francisco prime office values have dropped as much as 80%, with vacancy rates skyrocketing from 3% in 2019 to 30% in 2023.
SF commercial real estate investors only saw the tech boom of the 2010s, believing that startups would continue to lease office space. They couldn’t see how the covid pandemic would get tech companies to switch to remote work and move away from the city.
With residential real estate, long term trends like population decline, remote work, and YIMBYism will serve to cap continued growth in housing prices.
Looking ahead, it’s hard to predict precisely the ways in which human ingenuity can significantly reduce the value of “safe”, hard assets like real estate, but if it happens, the value reductions can be drastic, even permanent.
3) Commodities
The best performing commodities in one year can be the worst performers in the following year.
2014 -> 2015: nickel dropped from #2 (+7%) to last (-42%)
2015 -> 2016: lithium dropped from #1 (+187%) to second last (-9%)
2016 -> 2017: natural gas went from #3 (+59%) to last (-21%)
2017 -> 2018: lithium went from #2 (+41%) to last (-55%)
2019 -> 2020: oil went from #2 (+34%) to last (-21%)
2020 -> 2021: silver went from #1 (+48%) to second last (-12%)
2021 -> 2022: coal dropped from #2 (+161%) to last (-48%)
2022 -> 2023: lithium, nickel, and natural gas fell from #1 (+72%), #2 (+43%), and #3 (+20%) respectively to first (-81%), second (-45%), and third last (-44%)
"I've seen gluts not followed by shortages, but I've never seen a shortage not followed by a glut." - Nassim Taleb
The higher the price of a commodity, the greater the incentive to find and extract more of the resource and to develop alternatives.
Expensive coal incentivizes the greater drilling for natural gas and construction of gas power plants, pipelines, and LNG terminals.
Expensive oil incentivizes the purchase of hybrids and EVs.
Expensive nickel and cobalt causes NCM (nickel-cobalt-manganese) batteries to be replaced by LFP (lithium-iron-phosphate) batteries, made up of cheaper and more abundant elements.
Researchers are now working on sodium ion batteries, which could charge faster, contain more energy, and use the far cheaper and more abundant sodium rather than lithium.
In other words, as commodity prices rise, the larger the "human ingenuity" discount must be applied towards future commodity price projections.
The power of human ingenuity
Human ingenuity is the only resource on the planet that gets more valuable over time, as humans discover new and better ways to do more with less.
Technology lets you do "more and more with less and less until eventually you can do everything with nothing." - Buckminster Fuller
Cash, real estate, and commodities will be the inputs for which "less and less" are needed while businesses will capture the upside1 produced by the "more and more".
This fact is best illustrated by the performance of the S&P 500 compared with every other asset class since 1970.
