A short history of the future
Photo by Anders Jildén on Unsplash
The future is big business.
Just look at the slew of books, movies and TV shows that depict the world of tomorrow, often devoid of sunshine and beauty, cloaked in dust, totalitarian politics and vapid consumerism. The Matrix, Hunger Games, Oblivion, The Walking Dead, Interstellar, The Handmaid's Tale... the list is almost endless. These are serious productions that show us worst case scenarios for what might happen should we fail to address the many challenges facing humanity. But why are we pumping out so many dystopias?
The stories we tell (however brilliant or formulaic) are a vivid reflection of our contemporary culture – they hint at how we feel about the world and where we think it might be heading. Just as Freud and his contemporaries pioneered the study of dreams as a route into the subconscious, mass media exists as a form of cultural projection – if movies are the dreams of a society that ingests countless phenomenological inputs, then dystopian fantasies reveal themselves to us as nightmares; dark, distorted reflections of what life could look like if we stray from the right path.
The future is unwritten, so why are dystopias so en vogue? We rarely see utopia depicted with such gusto. In fact, Hollywood blockbusters tend to treat the future with disdain – harmonious societies serve only as act one setups for an inevitable descent into chaos and shocking violence that follows in act two. Things fall apart. The centre cannot hold. Mere anarchy is loosed upon the world. By the third and final act, utopia is the last thing on the audience’s mind – they’re focused solely on survival, getting home from the cinema to their nice warm beds, where improving (and quintessentially optimistic) non-fiction awaits on the bedside table.
Autonomous nukes and homicidal robots.
Dystopian literature has a relatively short but nonetheless fascinating history. In the aftermath of the French Revolution of 1789, it was believed by some that “mob rule” would produce dictatorship – a delicious irony that isn’t lost on us. Until this point, utopian writers had sought to characterise a world that revolved around perfect patterns and highly organized societies; but at the start of the 19th Century, writers began to recognise the impossibility of these scenarios. The world was becoming too complex, too chaotic, too unpredictable for human beings to tame.
Technological dystopian fiction is perhaps the most interesting subgenre of all, since it plays upon humanity’s intensifying suspicion of technology as a catalyst of doom. Those of us born at a certain point in the 1980s will recall SkyNet, the nefarious company from the Terminator movies that unleashes hell upon the world in the form of autonomous nukes and homicidal robots. This niche can be traced back to E.M. Forster's "The Machine Stops", a brilliant short story written in 1909 that envisions with uncanny accuracy our modern digital society, in which people are isolated from each other physically but connected via screens.
All this sounds plausible and vaguely familiar. Except that, if the COVID-19 crisis teaches us anything, it’s that technology has immense power to connect and elevate our humanity, not diminish it. Zoom can provide continuity and comfort to those who are unable to go outside. Shopify can enable brick and mortar businesses to pivot and plug a fall in revenues, and online grocery shopping can help us to feed our families until the time comes for us to return to Tesco (if indeed, we ever do go back).
Why aren’t we celebrating technology and getting excited about its role in our collective future (with certain caveats) - instead of denigrating it with sensationalist narratives? Of course, writers and movie producers should do what they do best - make art, entertain us and challenge us to reflect on our incurable condition. But the narratives they construct reflect and project widespread (and we believe, misguided) beliefs that the world is deteriorating. And this has implications for investing.
We’ve never had it so good.
More than 400 utopian works were published in the English language before 1900, and more than a thousand others appeared during the 20th century. Living conditions improved significantly in the latter century; the world got better in aggregate. So why did we end up with such an increase in dystopian literature? Why did storytellers feel the need to characterise our future – however fantastical – as doomed?
People consistently overestimate that the present is worse than the past, and will be better than the future. The prevailing wisdom seems to be that modernity has brought us terrible violence and existential dislocation, while our ancestors lived in relative peace and harmony. But the data simply does not bear this out – those who came before us lived tough lives, far more brutal and unforgiving than ours.
In fact, historical evidence shows that the passing of time has brought about huge improvements in human wellbeing – particularly in the developing world. The gap is in our understanding – between the historical record, and how we perceive the present day from the abundance and comfort of our living rooms in 2020. Perhaps the same gap exists in our perception of the future, too?
No news is good news.
The gulf between perception and reality is fuelled by psychological and emotional biases that some researchers argue predispose human beings to negative thinking. This intuitively makes sense from an evolutionary perspective – our chances of sustaining life and perpetuating our genetics are higher if we walk around in a state of nervous arousal, receptive to risk, almost willing bad stuff to happen so we can avoid it. The ever quotable Mark Twain springs to mind:
“I've suffered a great many catastrophes in my life. Most of them never happened.”
This beautifully captures the comic absurdity of ingrained pessimism. It’s just really hard for us mere mortals to resist. The neuroscience of negative thinking is augmented and stoked by the media, who rely on bad news to keep us hooked on content and monetise us. Of course, proper journalism is vital – fully developed democracies depend upon it to expose corruption and hold powerful people to account. But the byproduct of our love affair with the 24-hour news cycle and its virally optimised, clickbait offspring is that positive long term trends simply cannot compete with the litany of horrors that adorn our screens every day.
As an antidote to all this misery stands Hans Rosling's "Factfulness". Sadly Mr Rosling succumbed to pancreatic cancer in 2017, but before he died he gave us this wonderful book which serves as a stark reminder that the world is good, we are fortunate to have been born during this golden period of history, and we should all seek to gain some perspective on the trajectory of human advancement. With ample statistics, Rosling lays out the multitude of ways the world has become a better place – on almost every level. You come away from reading this book with the realisation (and proof) that people in most parts of the world are getting wealthier, healthier, and wiser. Like his famous Ted talk, it’s genuinely uplifting.
A word on markets.
Like Hans Rosling, we believe too many people are downbeat about where the world is headed. The same goes for markets.
We’ve already written about the art of optimism and how positive thinking is an important skill for entrepreneurs and investors to cultivate. Our reality distortion field is fairly massive, and whilst it gets smaller every day with the realisation that building your own franchise in the fiercely competitive world of financial services is tough, we hope it’s big enough to see us through the challenges of getting a project (or three) off the ground and turning it into a sustainable business.
It’s easy to be a pessimist when it comes to investing, too. It makes you sound cerebral, risk conscious, responsible. And at times, it’s almost overwhelmingly seductive. Morgan Housel has highlighted this tendency, pointing out that:
“Part of the reason pessimism is more seductive than optimism is because, despite an awareness of how powerfully things have changed in the past, it’s easy to underestimate our ability to change in the future. Psychologists call this the end of history illusion. In people it’s a tendency to underestimate how much your tastes and preferences will change in the future. When you combine this quirk with markets’ propensity to be in wild states of unsustainable highs and lows, pessimism reigns because it’s easy to underestimate how those crazy states will ever adapt or revert to the mean.”
Investment managers fear mean reversion when things are going well, but they fail to recognise its promise when things are going badly. In fact, the entire point of mean reversion is it’s neither friend or foe – it works both ways. Whether we like it or not, the laws of statistics don’t care about us. They don’t even know we exist.
Regardless of where you have chosen to hang your noise-cancelling headphones on the bull-bear spectrum, in recent years pessimism hasn't paid off for the vast majority of investors. The stock market has continued to inflate over time, and although there have been tactical opportunities to short major indices, the overall trend has been onwards and upwards, rewarding passive investors who have bought the market.
The fact remains that when you short the index, you not only short a bunch of stocks – you go against the hopes and dreams of millions of aspirational people. You also go against the entire system. So you better be sure that what you’re doing is prudent within the context of your wider portfolio and risk parameters. Going on Real Vision to talk about it probably shouldn’t be part of that assessment.
The global political and economic system is predicated upon steadily rising asset prices (within an inflation target). By betting against this en masse, you are siding with a tiny minority of people. They might be smart, but they’re playing against the house in a casino that can change the rules as it goes along. Unprecedented central market intervention as a response to COVID-19 is a case in point.
We are living in interesting (and troubling) ugh times and we honestly don’t know what’s going to happen next, but we do know that everyone (without exception) that we’ve spoken to over the past 3 months wants our way of life to endure. There is certainly a disconnect between newsflow (including economic data) and price action, which has left a lot of investors and economists scratching their heads, although not old hands who remember Barton Biggs and his observation that, “the hard reality of investment life that it is almost impossible to have both cheap valuations and good news.”
The odds are stacked in favour of the status quo, and there is a very real prospect of demand bouncing back aggressively once government restrictions are lifted and people are given the freedom to practise their own forms of social distancing. But again, we aren’t ideological about it. We simply monitor the situation looking for relevant data points, and stay agile with how we position the portfolio. It’s all we can do, in the absence of a crystal ball or a dose of deeply ingrained pessimism!
It seems that humans are not just bad at predicting the future (often in comical ways) – they are bad at understanding the present, too. In the absence of any evidence that the world is getting worse in aggregate, the best we can do is to learn from history, stay positive, and remain mindful of short-term bumps along the road. We have quoted many great thinkers and writers since launching this newsletter 18 months ago. But none can compete with the most quotable of them all, Sir Winston Churchill, who captures our mindset with characteristic brevity:
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
This applies on both macro and micro levels. Just as economies can enter transitory recessions, so too companies (and stocks) can encounter tough times. The hedge fund is the perfect means of navigating the volatility that accompanies humanity’s pursuit of progress – a vehicle for risk taking of the purest kind.
God it feels good to be managing money again!