Why Does the Stock Market Always Go Up?
How One Guy Made $4,000,000 Doing Nothing
If you put 100 dollars into the stock market in 1928, you’d have over four million dollars today.1 Even if you held a position for twenty years, you might make bank. This begs the question: why does the market trend up in the long run?
Investor Ben Carlson says it’s because the economy grows. Companies earn more money. But investing isn’t easy. You won’t get consistent yearly growth: “you get some combination of huge gains followed by bone-crushing losses. It has to be this way or the long-run returns wouldn’t exist.”
If the market was easy, everyone would be in it. At one point during the pandemic, the market was down 33%. Imagine “losing” one-third of your money while doing Zoom calls in your underwear. But in the long run, the pandemic is just a little blip on the graph.2
Since not everyone invests, you have an advantage if you can think in years. If you can tolerate “losing” money for months in a row. Being a long-term investor is like wearing a lanyard with a pass that says, “I’m a loser.” Some days you take it off if the market is up. You may wear it for months or years. Only after several years can you finally put it in your keepsakes. Because you know you’ve won no matter what happens in one day. It’s hard to lose if you think in years.3 This applies outside the markets, too.
"Extraordinary accomplishments come from doing ordinary things for extraordinary periods of time."
- Alex Hormozi
The stock market trends up over time because the economy grows. But why does the economy grow over time? The obvious answer: there’s more people, more companies, and more money circulating. Companies grow. Technology is more efficient. We’re more productive.4
But there’s a deeper answer: constant innovation.
The Paradox of Technology
Techonology solves problems we never knew we had but also creates new ones.
Take the iPhone: you don’t have to carry a camera, notepad, flashlight, TV, or record player. It’s an ingenious invention. But the downside is that it puts your whole life in your pocket. It leads to problems like phone addiction and unclear communication.
This is what I call the Paradox of Technology: it soves one problem but creates new ones.
Remember, technology isn’t just digital. The microwave helps us heat food faster. The Wright Brothers invented the plane so we don’t get seasick on our way to Europe.
New problems aren’t necessarily a bad thing. As society makes technological progress, we solve problems. If you think about it, a business is just a vehicle to solve problems. It’s valuable. Money is the exchange of value. Growth in society leads to economic growth. There’s a Japanese saying: kaizen. Continuous improvement. With the evolution of problems and technology, society improves over time.
The stock market trends up over the long term because technology improves. This grows current businesses, creates new businesses, and leads to economic growth. There will always be new problems to solve and innovations to make.5
Who would’ve thought Apple would build fifteen iPhones? In 2007, it was revolutionary to have your music and cell phone in one place. But when we see pics of the first iPhone, it’s just an ugly black brick. Our expectations are higher. Like a fat guy turned bodybuilder, higher expectations are a sign of progress. Not hitting the gym isn’t acceptable, just like how the first iPhone seems like a design dud.
With time and feedback, Apple updates hardware and software. They boost their own products and services. But think outside of Apple. Businesses create new problems to pounce on. Because of Apple, there’s iPhone accessory businesses like PopSockit and companies that repair cracked iPhones.
Jobs and Careers
As technology evolves, so do jobs. Twenty years ago, there was no such thing as a “Social Media Manager.” I’m 21. If you’re young, take comfort in something: your future job may be something that doesn’t yet exist.
“The internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.”
- Naval Ravikant
Why does this matter?
Business, money, and innovation are all about solving problems and creating value. To find your purpose, I’ve heard it’s good to think about a problem you want to solve. It could be something personal or just a small improvement to a company. Learn a valuable digital skill like social media marketing or coding. If you can, help companies or rich people because they pay better.6
Listen to what successful entrepreneurs like Paul Graham and Tim Ferriss say: create the thing you wish existed in the world. If you want it, others will too. It makes marketing easier because you are the target market.
I want to master the skills of online writing, research, and audience building. If you think about it, writing is the basis for all content: TV shows, movies, YouTube scripts, speeches, and books. It gives me the most options downstream.
So I think.
Notes
Based on the S&P 500 index fund, adjusted for inflation and reinvested dividends.
By “market,” I’m referring to the S&P 500 Index. It’s a collection of ~500 companies in the United States. It’s a way to track the trends of the overall stock market. The reason I’m quoting “losing” is that you’re not actually losing if you haven’t sold out. But because losses feel ~2x as worse as wins feel good, it feels like a damn loss.
Based on three years of investing in stocks, it’s a good strategy to not check them daily. Detach from daily outcomes. I’m not a financial advisor though, so don’t take my word for anything in this post.
No company is guaranteed to last. You can lose all your money. I’m grateful to my dad for helping guide my investment decisions. I thank myself for not selling when quality stocks are on sale.
The stock market is a generally good proxy for the economy because it reflects economic activity. The market has many companies on the stock exchanges. These companies heavily contribute to a country’s total economic value.
Keep in mind that in this essay, I’m referring to the US stock market and economy. A friend asked why I think Japan’s economy is stagnant. I had no clue. The focus is more with technology in the United States.
I’m hesitant to use the word “always” because almost everything isn’t black or white. But based on how much we complain, it seems like we can always improve stuff.
An interesting example: to make more money as a Spanish teacher, advertise your services to a real estate company looking for a translator rather than anyone looking to learn Spanish. If you help close a deal, you might even make commission. That pays better. Positioning counts.
Thanks to Anthony Marsilio, Tommy Christie, Dante Ausonio, Gavin Berkey, Tim Blackwood, and Shawn Blackwood for reading drafts of this.
Watch your thoughts, for they become words.
Watch your words, for they become actions.
Watch your actions, for they become habits.
Watch your habits, for they become character.
Watch your character, for it becomes your destiny.
Writing allows for clearer thought and the rest is the foundation towards your destiny. Love this and excited for you to keep crushing it.
You and I. Talk.
"Twenty years ago, there was no such thing as a “Social Media Manager.” I’m 21. If you’re young, take comfort in something: your future job may be something that doesn’t yet exist."
I helped put up a chart similar to this on the entire back wall of the cafeteria for Morgan Stanley, to inspire ideas for a strategy workshop we were holding. It was 1998 and the Dow had not yet crossed 10,000.