Please ensure Javascript is enabled for purposes of website accessibility

The American Stock Market Runs on Optimism

Perhaps a slogan that best represents American history as well as the American stock market might be - “America Runs on Optimism.”

The White House with waving American flag

It is a curious thing that despite all the progress we’ve made in America and around the world in the last century, many investors face the future in a sour mood of pessimism. Yes, the markets have not been acting well lately but over any reasonable time span, the American stock market is certainly the place to park a reasonable amount of your savings.

The political and cultural divisions in our country are concerning, as are the speed of change in technology and finance. But to gain perspective, we need to sit back and take the long view from time to time.

Therefore, books like Enlightenment Now by Steven Pinker, Slouching Towards Utopia by Brad DeLong (which I read this weekend), and The Rational Optimist by Matt Ridley are so important. They all do a great job of looking back at all the progress the world has made and why it is likely to accelerate in the future.

It’s important to keep in mind how far we have come. Life expectancy in England in 1800 was only 40 years and one out of every three infants died. In 1800 Americans spent 76% of their income on food, clothing and shelter - now it’s about 37%. In 1870 the poverty rate (real income of less than $2 a day) worldwide was 70%, now it is less than 10%.


Even looking at America where much talk is about the persistence of poverty, 99% of us have electricity, running water and refrigerators, 95% have television, 71% own a car and 70% have air-conditioning.

Meanwhile, Cornelius Vanderbilt, one of the wealthiest tycoons of the robber baron period, had none of these things. And “Commodore” Vanderbilt lived in an America that produced some of the most amazing spurts of productivity and efficiency in industry and manufacturing.

For example, between 1870 and 1900, freight charges fell 90%, the price of steel fell 75%, the price of oil fell 80% and American per capita GDP grew 66%.

And even during the Great Depression, much scientific progress was made. For DuPont, 40% of their sales in 1937 came from products that did not even exist in 1929.

For the world, the progress, while uneven, has been absolutely stunning.

During the last 50 years, life expectancy has increased by 26 years. Over the past thirty years, approximately 1.5 billion people have escaped poverty. The proportion of Vietnamese living on two dollars a day has dropped 90% in the last two decades and America now trades more with Vietnam than the United Kingdom. According to the United Nations, poverty has been reduced more in the last 50 years than in the previous 500 years.

Be a Rational and Optimistic Investor

What does all of this have to do with investing?

The trajectory of the American and world economy is upward and very likely to continue to surprise the pessimists and the bears. The reason is the natural inclination for growth spurred by a rising population and continuous innovation.

The same upward trend can be seen in the American stock market, as measured by a chart of the Dow Jones Industrial Average from 1900 until today (courtesy of Macrotrends).

chart of American stock market over last 100 years as measured by the Dow Jones Industrial Average

Sure, you will see some sharp downdrafts and some choppy periods, but the lesson here is to try to stay invested in markets for the long haul, but I suggest you take one action that will boost your returns.

Keep a decent cash level in order to stay flexible and take advantage of down markets.

Buying some quality companies at bargain prices will allow you the opportunity to beat the benchmarks and let you sleep a bit better at night.

Look forward and invest with optimism tempered by the acceptance that markets fluctuate. If you don’t stay in an optimistic frame of mind, you will surely miss opportunities.


Carl Delfeld is your guide to growth trends and bull markets around the world. His Cabot Explorer will show you the vast profit potential of investing in emerging economies as well as other world stock markets.