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Why optimism is the only realistic outlook

Investment expert Alan MacDonald of RBC Dominion

It’s tough being an optimist these days.

The political culture wars are driving friends, families and countries apart. Europe and the Middle East are engulfed in armed conflict. Climate change is posing an existential threat to our entire planet the likes of which we’ve never seen before. And on the financial front, investors have endured a roller coaster ride of three different bear markets over the last six years, all while rising inflation and high interest rates have been pushing financial stresses through the roof.

Faced with all that, making a case for optimism can sound hopelessly naïve. It’s much easier to simply project what we know today into the future, and come to the seemingly reasonable conclusion that a “diversified approach to investing” right now might just mean digging three separate holes in your backyard to horde your bottled water, canned goods and gold.

How “The Population Bomb” went bust

But the reality is, people who try to guess what the future holds in store by extrapolating the present almost never get it right. Just consider the case of Dr. Paul Ehrlich’s infamous best-selling book, “The Population Bomb.”

Released in 1968, Ehrlich’s book drew on the latest demographic trends of the time to conclude that humanity was on the verge of running out of food. According to Ehrlich’s dire projections, by the end of the 1970s, the human race was going to face an extinction-level mass starvation event that would result in hundreds of millions of people literally starving to death.

“The Population Bomb” was hugely successful, sparking countless debates in both popular and academic circles, and even earning its author an invitation to appear on “The Tonight Show with Johnny Carson” more than two dozen times. Fortunately, it was also completely wrong.

Not only did his predictions of mass starvation not come to pass, since the publication of Ehrlich’s book, famines have actually become less common worldwide. The reason why Dr. Ehrlich’s predictions were so wrong wasn’t because he misunderstood the demographic trends, or that he got his math wrong.

It was because he failed to consider all the innovations like high-intensity fertilizers, new irrigation systems and better seeds that were about to transform global agricultural production over the next decade, but which simply didn’t exist when the good doctor was researching his manuscript.

Fear is never as smart as it sounds

Like so many would-be fortune tellers, it wasn’t what Ehrlich didn’t know that led his predictions to be so far off. It was what he didn’t know that he didn’t know.

The advances in agricultural technology that made Ehrlich’s pessimistic forecasts obsolete weren’t just extrapolations of things that already existed when he wrote his book. They were completely new, game-changing inventions that neither he nor anyone else saw coming until after they were already here.

For Ehrlich’s readers in the 1970s, pessimism and panic likely seemed like pretty smart responses to the world’s problems. With everything that’s going on in the world right now, fear probably also feels like a wise choice to many of us, too. The problem with that approach is that it fails to take into account all the incredible innovations, technologies and discoveries that could be right around the corner, but which none of us has any idea are about to change our lives forever.

The 10 biggest companies in the world today, for example, didn’t even exist when “The Population Bomb” first came out. And no one in Ehrlich’s time, or as recently as 30 years ago, would’ve imagined that right now, a teenage girl somewhere is asking Siri to do a Google search on penguins using her iPhone 15 – a computer that fits in the palm of her hand, but which is 100,000 times more powerful than the ones NASA used to send the first astronauts to the moon.

It’s not so much that Dr. Ehrlich didn’t think to factor in advances like fertilizers, Google searches or the iPhone. It’s that neither he, nor any of the millions of people who watched his appearances on The Tonight Show, could have conceived of the existence of such things until someone else created them.

The future likely won’t look anything like we think

To put it another way – things change. A lot. And when they do, it often happens faster than anyone expects, and in ways most of us couldn’t dream of.

There’s no shortage of seemingly intractable problems in the world today. But if history is any guide, there’s a very good chance that the future won’t look anything like we expect it to, or anything like how the world looks now. Certainly, that future world is bound to have its own unique problems. But they probably won’t be the same pressing issues we’re facing today.

That’s just as true for investors as it is for demographers, sociologists, and biologists like Dr. Ehrlich. If one of those viewers who watched Johnny’s interviews with Dr. Ehrlich in 1970 let his predictions scare them into getting out of the stock market, they would’ve missed out on quite an opportunity.

Left alone to compound, a $10,000 investment in the S&P 500 in 1970 would be worth around $2,000,000 today. Even with inflation, that could still buy a lot of bottled water and canned goods.

The bottom line is, when you take the long view, optimism is both smart and realistic. It just doesn’t always feel like it.


This article is supplied by Alan MacDonald, an investment advisor with RBC Dominion Securities Inc. Member–Canadian Investor Protection Fund.

This article is for information purposes only. It is not intended to be financial advice, and the opinions expressed are the opinions of the author only. Past performance is not a guarantee of future results. All assumptions, opinions and estimates made by the author are subject to change without notice.

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