A version of this post first appeared on TKer.co
One of my favorite research reports is UBS’s “Global Investment Returns Yearbook.”
The 310-page encyclopedic review of historical financial market data is authored by Professors Paul Marsh, Mike Staunton, and Elroy Dimson, who have been updating the compendium annually since 2000. It builds off of work they published in the popular “Triumph of the Optimists.”
The authors do a nice job of applying analytical rigor to data often taken at face value. Last year, I wrote about how they challenged the assumptions that stock market returns were mean-reverting.
On a Tuesday media call, Dimson discussed the ups and downs of past experiences with emerging world-changing technologies and the bubbles that often accompanied them.
“New technologies have transformed the world, but they’re typically disruptive,” he said. “Rail disrupted canals. Rail was disrupted by trucking and by air. People were very worried about an AI bubble. … The current concern has switched over to FOBO — fear of becoming obsolete — due to AI. And that’s what new technologies do. They disrupt.”
These disruptive technologies don’t follow the same paths, which should have investors thinking carefully before going all-in on the AI hyperscalers or avoiding them outright.
“Some technologies have been good, long-term investments,” Dimson added. “Others have not. It would not have been wise in hindsight to have invested in canals in Britain in the late 18th and early 19th centuries. They were disrupted by rail, and they lost a great deal of money. So some technologies have been great. Others have not.”
At this point, it’s hard to imagine something interrupting the current trajectory of AI. But trains were once hard to imagine, too.
One of my favorite visuals from the report is the one below showing U.S. stock market industry weightings in 1900 versus the present.
It reminds us that the stock market’s long-term growth has come with massive changes beneath the surface.
“Of the U.S. firms listed in 1900, some 80% of their value was in industries that are small or extinct today, including railroads, textiles, iron, coal, and steel,” the authors wrote. “Meanwhile, 70% of today’s companies in the U.S. come from industries that were small or non-existent in 1900. Technology and healthcare were almost totally absent from stock markets in 1900.”
That’s the markets and the economy for you. Industries rise and fall. Jobs come and go. And yet the markets and the economy always manage to come out on top.
