Case for Optimism

David Deutsche in his book “the beginning of infinity” talks about the similarities between a Russian roulette and future of civilization.

Russian roulette is random. We cannot predict the outcome, however, we do know what the possible outcomes are, and the probability of each, provided that the rules of the game are obeyed.

The future of civilization is unknowable, because the knowledge that is going to affect it has yet to be created. Hence the possible outcomes are not yet known, let alone their probabilities.

Thomas Malthus propounded in 1798, what’s known as the Malthusian theory of population.

He believed that while the growth in population is geometric (2, 2ˆ2, 2ˆ3…..), the growth in food production is arithmetic (2, 2+1, 3+1, 4+1…..).

Malthus then argued that because there will be a higher population than the availability of food, many people will die from the shortage of food.

He theorized that this correction would take place in the form of Positive Checks (or Natural Checks) and Preventative Checks. These checks would lead to the Malthusian catastrophe, which would bring the population level back to a ‘sustainable level.’

Based on Current Knowledge

What Malthus theorized was based existing trends and understanding of the existing technology of food production.

He had not envisaged how the food production and storage technology is going to evolved, catering to not just the current population but enabling storage for the future.

The Case for Optimism

When a prediction is made basis the facts as they exist currently and extrapolating them into future, what’s being missed is how humans have made progress overtime and conquered odds stacked heavily against the end of the civilization.

There are problems today and there will be problems in the future.

The black plague that struck humanity in 1353 lasted 7 years killing 75-200 million people.

It was caused by the bacterium Yersinia pestis.

Now we know that today and there are several medicines to treat it, however insufficient knowledge at that obviously caused a disaster.

75-200 Mn people died at a time when the global population was 475 Mn caused a drop of 20% in global population.

Compare that to Covid-19 for which vaccines* were attempted and administered in record time.

*Now there are debates about the efficacy of the vaccines, however the attempt above is to address how knowledge can become a weapon against epidemics and not to debate the efficacy of the vaccine.

What gives you optimism hence when you look at all the global problems today is that we are far more prepared and continuously improving our tools to face the future.

A Lesson for Money Management

Since last October when the markets peaked in India.

Lot of investors have seen their portfolios shrink.

It has been a shock to even experienced investors leave out the first times who had only experienced positive gains since they began.

I especially get concerned about investors in crypto for whom some investments have got completely wiped out.

The case for their optimism is here:

  • Experience always makes you better at almost everything provided you take the right lessons
  • Keeping a balanced portfolio is more important than maximizing returns
  • Returns in equities are never linear
  • Equity markets always reward you in the long run provided
    • You know what you are invested in
    • You keep evaluating why you invested in something and if that rationale has changed for better or worse
    • Re-balance the portfolio to keep it in steps with time, no theme in equity markets is same; Benchmark indices today are unrecognizable compared to the same benchmark 20 years ago
    • If you can’t stay in step with the markets, find a good advisor and lean on them to keep you stay the course

Here is the final thought from David Deutsche:

“Problems are inevitable because our knowledge will always be infinitely far from complete. Some problems are hard, but it is a mistake to confuse hard problems with problems unlikely to be solved”

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