Will the stock market continue to infinitely go up? The author’s belief at this current moment is yes, it can. Given the history of numerous depressions and shocks, this may seem like undue optimism, but it is a conditional optimism following the guardrails I shall lay as follows.
My core assumptions are that the accumulation of capital over time is essentially infinite, and so is the growth of human population. Decline in present human population growth merely comes from dislocation in finding the right social systems, behaviors, and acquisition of enough resources to manage self-reproduction in a modern technological environment.
The pessimistic case in recent memory generally appears to be some repeat of WWI or WWII—civilization blows itself up or some financial contagion arises which leads to widespread famine and depression for a long itme. The Malthusian view advanced in 1798 where exponentially growing human population with arithmetically growing food production was disproved by advancements in technology and decreases in birth rate.
What is the origin of capital, land, and labor?
Generally economists appear to split factors of production into capital (machinery, tools, software, buildings), land, and labor, of which one gets profits, rents, and wages in correspondence to each factor.
The origin of all human wants, desires, and factors of production appears to be the sun. Conceivably civilization could exist through some earth core/nuclear combo if the sun went out, but for modern purposes let us presume the sun is the major factor.
From this energy gradient, then conceive of the idea of stocks and flows. Imagine a sort of neuron or tree root structure where the hub is a stock market or other centralized store of value and dendrites as reaching into the locales around it. A single village would be a small neuron as it acquires resources from the surrounding land, and the centralized state in previous times would be a big one as grain taxes for example were sent up. Society is composed of these interlocking groups of root-like structures which funnel human labor, ingenuity, and value upwards to some centralized source. Ideally, this centralized source then funnels structure back down to promote continuous growth, i.e. civilization. When this engine of civilization breaks down and surplus value is often spent on consumption, societies often don’t explode but rather break apart into smaller sub-units.
The cyclic loop of information acquisition and financing of ideas leads to continuous process and growth. In earlier years, libraries, Microsoft Word, and books served as this main information hub. Now I would argue a significant amount is embodied in Google, Youtube, Substack, Github and various media platforms as the repository/template of human knowledge. We cannot build capital without the mental understanding of it, meaning the importance of efficient, accurate, and fast multimedia communication is not to be underrated. Though financing at the early stages is done by individuals and groups, consider that in my experience with the American stock market, it serves as a sort of vehicle that grows in parallel with this civilization itself. Inefficient companies are delisted, efficient ones receive large amounts of passive flows.
There are multiple of these societal neuron-like structures and centers across the earth, and many of them compete with each other. What matters is that there is some core surplus, and that there is a way to allocate it, and there may be investment ways different from stock markets. Europe seems to be headed toward a sort of a state finance model. Though some decry it, I don’t think the model itself matters so much as it is that something is efficient and allocates surplus properly and in uncorrupt ways. Obviously if one civilization destroys or absorbs another or self-collapses, the surplus of those places will decrease and whatever stores of value there are lost.
Sometimes bubbles appears as society climbs the civilization ladder. This is because different sectors of civilization grow unevenly and at different rates, but generally it is always continuing to grow. Financial allocation into one area somes leads to over-alocation. Basically, to make money through civilization finance, climb the civilization ladder reflected in where society is allocating resources before bubbles explode from over-allocation. It seems that indices do this by buying the whole ladder, somewhat jumping around by listing/delisting companies, but always kind of lagging where the actual movement is. This should be distinguishied from vulture finance, which seeks the harvesting of productive resources for personal gain.
The purpose of wages, nationality, and locale roughly appear to be a distribution regarding each year’s production of resources. We have a year, and we have a finite amount of STUFF we produce each year, so wages/rents/profit are your claim on that pie in the world: the networks you can afford to live by, the resources and foods you can consume, the things you can buy/invest in. Of course
I feel relatively fortunate to live in the United States, because population is comparatively low and land is plentiful, and land is a scarce resource in many parts of the world, especially if you visit islands like Hong Kong to have that sense of contrast where 40-story apartments are the norm. I think that in a few hundred years, having ownership of any land on planet Earth will be considered tremendously wealthy for the time.
Stocks as a function of floor and belief
Given the above civilization finance thesis, it can be helpful to view equities through the following lens: intrinsic price + belief price. Note that this intrinsic price is actually hypothetical: it is derived from the income statement and balance sheet to create a sort of liquidation value per share. In reality, there may not be options to actually liquidate the company and the price is actually set due to an agreement between buyer and seller.
Evaluating management competence
https://x.com/koreavaluehunt/status/2053608281462198635
It is somewhat common for investors to send someone to a company to research/analyze it.
Conclusion
Thus, it appears to me that investment follows the following rules:
- Don’t lose money. Preserve capital. This is the most important rule and has been spoken by Buffet, David Swensen, other people.
- Invest in sectors that are civilizationally growing before investment starts to shift to another sector, avoiding bubbles. But if bubbles form due to excess belief price in equities and one can identify that, doesn’t hurt to gain some extra money.
- Evaluate company financials and management competence
- All in the while keep in the back of mind which civilizations worldwide are growing, which are shrinking.
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