Michael Hanson
Into Perspective, Behavioral Finance, Capitalism

Upside Risks Are the Riskiest

By, 01/23/2015

“Man is dragged kicking and screaming toward his destiny.” – Carl Jung

We’ve figured out a way to worry about low oil prices. Low oil prices…bad! In the last decade, I spent a good portion of my life trying to talk folks off an investing cliff tied to high oil prices. Now we’ve gotten our wish—cheap and abundant oil tied to rapid technological advancements few foresaw—and many seem to hate it. Sure, cheaper oil is trouble for some energy companies and their employees, but on net, low oil prices tied to innovation driving up supply creates winners, too, and are an overall boon to the world economy by magnitudes.

We’ll surely lament many more “surprise” developments that will do the world great good: widespread natural gas use for vehicles (both cheaper and cleaner than today); water desalination technology changing the game for agriculture and general human access to water as we know it; laser technology advancements transforming a variety of fields from the armed forces to aviation; robotic automation lessening forever sheer human toil; breakthroughs all over the place in medicine from neurodegenerative diseases to nanotechnology to preventative systems.

Some of these will happen, others won’t, and many we can’t even fathom today. Our imaginations exceed in pessimism and lack optimism—it’s only rare spells where that reverses. A cursory look at science fiction history reveals we tend to think about the future as dystopia. Even when it seems like utopia, it turns out to be Soylent Green, or maybe the Ape world was Earth all along, or some other ‘70s Charlton Heston movie of your choice (Omega Man, perhaps?).

Everyone fears Dr. Zaius and can’t appreciate the great discoveries here and now. We’re likely wired for it—those who worry constantly probably got mauled less by saber tooth tigers pre-civilization. Consider: How do you react to the news scientists may have discovered a way to robotically replicate the mind of a worm? I’m betting some will be skeptical, some fearful and only a tiny minority excited. But that inclination works against us with investments.

Technological advances force adaptation, it’s true. There is no denying new things force change and even hardship on some. But capitalism, in all its raw power in improving conditions, always had this feature.

The best way to capture all this prosperity coming at us? Stocks. Big, broad, beautiful, global stocks. No other liquid asset class comes close to capturing the long-term upside risks folks perpetually underestimate. It feels perverse, but the biggest risk to investors who need long-term growth to fuel their future is disbelief in the centuries-long trend that has confounded pessimists forever. Simply, upside risks happen far more than downside. This is the reason the stock market is way up over time. Through history, pessimism has proven only temporarily accurate. Optimism wins in the long run.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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