I’ve recently been reading Yuval Noah Harari’s 21 Lessons for the 21st Century. Harris, a Ph.D. in history from the University of Oxford, has sold millions of copies of this book and his two prior books, Sapiens: A Brief History of Humankind and Homo Deus: A Brief History of Tomorrow. After looking deep into humankind’s history and far off into our future, 21 Lessons is Harris’ attempt to look at the present trends that will carry us through the rest of a century months away from entering its third decade.
Very early in the book, Harris argues that the tenets of liberal democracy and free market capitalism that have dominated society over the last century or more are currently losing favor. He shows examples from World War II and the rise of communism to suggest that this is not a new phenomenon and could even be cyclical. In setting the table for where he’s going to take his lessons from there, he summarizes that any attempt to state with certainty whether this trend will continue or reverse itself at some point is foolish as society is nowhere near a consensus as to its direction forward.
What caught my attention was what he said next. That to begin finding some direction forward, “the first step is to tone down the prophecies of doom and switch from panic mode to bewilderment.” He continues, “Panic is a form of hubris. It comes from the smug feeling that one knows exactly where the world is heading: down.”
This struck me as highly correlated to how we typically see the economy and financial markets portrayed. The financial media and those in the prediction business tend to advance stories of certain doom over most others.
It makes sense. It keeps eyeballs glued to the screen. If they’re wrong, investors are still happy. If they predict the status quo, no one would watch or listen. In some ways, there’s almost a certain strange comfort to knowing that the other shoe will drop at any moment.
Harris goes on, “Bewilderment is more humble and therefore more clearsighted. Do you feel like running down the street crying “The apocalypse is upon us”? Try telling yourself, “No, it’s not that. Truth is, I just don’t understand what’s going on in the world.”
Admitting we don’t understand what’s to come is a frightening proposition. I believe this has only been compounded by the dawn of the Information Age. With all the world’s data, news and information at our fingertips, we feel we need to have (or should have) a handle on EVERYTHING going on in the world. This is, of course, a ridiculous notion akin to the hubris Harris mentions in his discussion of panic.
Rather than try and outguess the state of the economy or the market ahead, we choose to accept that any security or financial instrument includes all available information in its current price. Utilizing the wisdom of crowds means accepting what thousands or even millions of investors across the globe have agreed is a fair price as the best tool we have to assess future value of the market at any given moment.
While the world can be a scary place at times, embracing uncertainty and our inability to predict the future is key to a successful investment experience. The next several decades will bring all kinds of change. Industries will continue to automate, career paths will be completely transformed and whole sectors of our economy will be turned on their heads.
Having an investment plan that provides vast global diversification ensures that the shocks caused by potentially drastic changes is muted. While who wins and loses in these scenarios is unknowable, owning them all in a manner where no one holding can dramatically alter your fortune to the good or bad is the best available model for long term success.
Call it panic-free, bewilderment-friendly investing.