Keeping Current Events in Context ~ Worth

What’s an investor to do?

Originally published by Worth
By Garvin Jabusch

As investor Jeremy Grantham says in his most recent shareholder letter, “In an investing and economic world in which almost everything seems to have changed in the last 20 years, one thing has remained constant: human nature.” That pretty well covers it.

Economic change can be observed all around us: computation power increasing dramatically, AI, machine learning and algorithms thus empowered to do more automation, autonomous operation and robotic animation. Electric vehicles are beginning to replace internal combustion. Wind and solar have become cheap enough that they can out-compete fossil-fired electricity generation—even though the subsidies and incentives deck in most countries is stacked in fossils’ favor. This is simply the evolution of the economy. Evolution goes ever as it must, and the human imperative for growth—or at least a better life for ourselves and our families—never stops.

Meanwhile, ecology shows us that the fatal flaw in any system, including human economics, is a finite-time singularity in which whatever system you’re running first stagnates then collapses. If stone doesn’t give way to bronze, it stagnates indefinitely until ultimately it fails. The only reset button on the clock of the growth/singularity curve is the advent of a major innovation or paradigm shift: Bronze gives way to iron. The next innovation doesn’t permanently solve the singularity curve’s decline, but it does postpone it. Thus, we always need a new, more productive paradigm to enable growth. And if as an investor you want to maximize your participation in that growth, you need to think hard about how the future is becoming and why. Finite-time singularity outcomes in the dynamics of technological and economic step-changes are accelerating, and that acceleration is increasing.

The economy is, now more than ever in history, characterized by a positive feedback loop of deeper and more frequent social, commercial and, most importantly, informational interactions, allowing ideas to rapidly build on one another. In turn, this is leading to innovation, wealth creation and the pace of life speeding up. What took 1,000 years in tech change now takes a decade—or a year.

In this world, complacency with the status quo is in reality a backward-looking vision that we can ill afford. You can play defense and try to keep the tide off the beach, but in the long run it’s much more likely that you’ll earn competitive returns by innovating. Unless you’re constantly future gazing, it’s hard to invest for the perpetual term.

In the midst of this, other inalienable facets of human nature make us want to resist change and hold onto and consolidate our power and economic wherewithal (even if that is derived from the economics of the last singularity curve, e.g. coal). As a result, we can observe present-moment artifacts of these facets in an ever more polarized political landscape, as characterized, for example, by nuclear saber rattling with North Korea and the United States’ withdrawal from the Paris Climate Accords. (Remember: There is actually a demand side for disinformation; if I don’t want there to be climate change, and I can tell myself I believe there’s no climate change, then it makes my identity dissonance go away.) Natural selection has given rise to our imperatives to adapt and innovate, but group selection has also given us tribalism and its attendant blind spots, discord and violence. These forces can and do make a chaotic mess of reality within the (sometimes hard to see) context of the present finite-time singularity curve and what’s next.

Human nature remains, but economies do change.

In the face of all this, what’s an investor or investment manager to do? We can hew closely to long-term economic trajectories, and we can stay on thesis: We can actively reallocate assets away from systemic downside risks, including climate change and resource degradation, while engaging in the upsides of owning the ongoing step-changes, in owning what’s next. Yes, this is the same thing as investing in sustainability. If there is going to be long-term economic growth, it will be on the basis of Next Economics: the environmentally and economically de-risked global civilization that can work within earth’s various physical tolerances.


Important Disclosures