Things Got Better, Slowly

The most important economic story over the last five years is that things got better, slowly.

Dozens of jobs reports, countless earnings reports, a parade of forecasts -- none of the details matter anymore. You could have tuned most of it out. All you needed to know was that things got better, slowly.

That's also the most important economics story of the last 10 years, the last 20 years, and the last century. There were recessions and market crashes and bankruptcies and frauds. But things got better, slowly.

Few talk about this, but it's pretty much always true. I think it's the most important point in investing and economics.

Risk is hard to think about rationally because downside losses -- stocks crashing, economies stalling, planes falling out of the sky -- happen suddenly, which startles us and excites the media.

Upside potential, on the other hand -- bull markets, economic expansions, declines in cancer mortality rates -- progresses slowly over time, which isn't nearly as exciting. So it gets ignored, even if it's more powerful.

The most popular economic story of the last decade was the 2008 recession, which cut the stock market in half and destroyed 9 million jobs. It will be written about for centuries. But the most important economic story of the last decade is the recovery since 2009, in which the stock market tripled and almost 10 million jobs were created. Yet it's received a tiny fraction of the attention. Most people are in firm denial about it.

This is common. Everyone has heard of the crash of 1987, when the stock market fell more than 20% in one day. They call it Black Monday, and it will be remembered forever. But few cared about the 102% stock market surge that took place in the two years before the crash, or the 65% rally in the following two years. They don't call it anything. There are no books written about it. But it let anyone in stocks more than double their money during this period, Black Monday and all.

Optimists are often viewed as dewy-eyed goofs, oblivious to problems around them. But the real difference between optimists and pessimists is that optimists tend to have a longer time horizon, and are willing to wait longer.

Here's an example. Some really awful things happened in America over the last 160 years:

  • 1.3 million Americans died while fighting nine major wars.
  • Four U.S. presidents were assassinated.
  • 675,000 Americans died in a single year from a flu pandemic.
  • 30 separate natural disasters killed at least 400 Americans each
  • 33 recessions lasted a cumulative 48 years.
  • The stock market fell more than 10% from a recent high at least 97 times.
  • Stocks lost a third of their value at least 12 times.
  • Annual inflation exceeded 7% in 20 separate years.

If you reacted to news headlines, you'd think the last 160 years were a terrible time to be alive. But our standard of living increased 20-fold during this period:

Optimists don't think bad things won't happen. Bad things will always happen. The core of being an optimist is knowing that if you can wait long enough, the odds of winning are in your favor because things get better over time as most people wake up in the morning trying to do good. The core of being a pessimist is having such a short time horizon that you're forced to care about the bad stuff that happens in between. 

Stocks are pretty expensive these days. They'll crash again before long. It's been five years since we've had a recession. We'll have another one before long. I really think there's only one key to making it through these inevitable events: Setting yourself up so you can wait long enough for things to get better, slowly.

Check back every Tuesday and Friday for Morgan Housel's columns.

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  • Report this Comment On September 05, 2014, at 4:31 PM, PRELL75 wrote:


    Excellent piece as usual. You'll find that a lot of people's outlook will center on ideollogy and bias' (as you have pointed out many times). Comparing the optimists' outlook vs. the pessimists' outlook was apt. Looking forward to reading more thought provoking articles by you.

    Just a note. I have been reading your columns for years. This is the first time I have ever commented. I plan to comment more frequently in future. Thanks.

  • Report this Comment On September 05, 2014, at 6:54 PM, 2motley4words wrote:

    "[T]he real difference between optimists and pessimists is that optimists tend to have a longer time horizon."

    Pessimists might rejoin that one therefore should necessarily become more infected by pessimism as her/his personal time horizon (i.e., his/her individual life) grows ever shorter---which might prompt optimists to reply that the most effective antidote to such a "sickness unto death" is to ensure that one's time horizon extends further than that.

  • Report this Comment On September 05, 2014, at 7:58 PM, marketmap wrote:

    We confide in the long term with an infrequent viewing of a representation of the rolling 20 year % performance of our model. By doing this, we can override any biases that may distract the process in the short term.

  • Report this Comment On September 05, 2014, at 8:02 PM, My535 wrote:

    I continue to struggle the the Foolish long perspective as an article of faith. Sometimes, as in 2008, we can foresee a correction coming. Many of the signs were there, as highlighted in Michael Lewis's The Big Short.

    A blind refusal to react to these signs caused a missed opportunity, while a preemptive reaction to this anticipated correction provided the cash to take advantage of the inevitable recovery.

    The perspective is still long term but potential opportunities are recognized as well.

  • Report this Comment On September 05, 2014, at 8:09 PM, TMFHousel wrote:

    <<Sometimes, as in 2008, we can foresee a correction coming. Many of the signs were there, as highlighted in Michael Lewis's The Big Short.>>

    I think there's a lot of hindsight in that, which is why Lewis wrote the book in 2010 and not 2008.

    People were just as sure (if not more) that we were going to have another deep recession and crash in 2011, with Greece going bankrupt as the cause.

    Crashes happen but I think the idea that we can predict them is totally wrong.

  • Report this Comment On September 05, 2014, at 8:15 PM, My535 wrote:

    I wouldn't say "totally wrong" hyper liquidity was quite obvious to anyone paying attention - including myself. I will grant you that 2008 was a special case. Other than all time highs, I don't see such obvious signs presently and they haven't been so obvious to me in the past I admit.

  • Report this Comment On September 06, 2014, at 1:36 PM, Mathman6577 wrote:

    There was enough "foresight" in Aug/Sept 2008 to get (at least part way) out of the market before the bottom fell out. The trick was knowing when to get back in (the right answer was March 2009 but who knew?). The best way is to not time but to reallocate occasionally.

  • Report this Comment On September 06, 2014, at 1:44 PM, TMFHousel wrote:

    <<There was enough "foresight" in Aug/Sept 2008 >>

    How? What if Paulson/Bernanke issued a press release on September 1st that said "We will bailout every bank and money market fund regardless of size. No one will be allowed to go under." Including Lehman Brothers.

    The market outcome would have been very, very different. The only reason we know that didn't happen is because we now have hindsight.

  • Report this Comment On September 06, 2014, at 1:52 PM, Mathman6577 wrote:

    If I remember correctly you were about 24 or 25 at the time of the crash --- way too young and inexperienced to determine what MIGHT have happened over the next two to three months (unless you had a very cool experienced hand guiding you through the mess). As I said in my earlier comment I think there was enough foresight to get at least part way out of the market ahead of time BUT the tricky part was knowing when to get back in.

  • Report this Comment On September 06, 2014, at 1:58 PM, TMFHousel wrote:

    The funny thing about making fun of someone's youth when you're unable to answer their question is that you end up looking like the immature one.

  • Report this Comment On September 06, 2014, at 2:01 PM, Mathman6577 wrote:

    Sorry buddy if I insulted you, not my intent, since you are the golden boy at the Fool.

  • Report this Comment On September 06, 2014, at 5:27 PM, DanFPilot wrote:

    I think one of the points the author is making is to extol the virtues of buy and hold investing. Which I agree with one hundred percent. Problem is, the only realistic way to buy and hold (especially during a major bear market) is to buy only individual stocks and index funds/ETFs. You may have been fearless in 2008 but it doesn't mean the fund manager of the active fund you own is. Unfortunately even though I pretty much held the course in 2008 a lot of the active funds I owned did worse than the market in 2008 and failed to recover with the market 2009 on. Some even ceased to exist. I lost a fair amount of money even though I didn't panic and sell out in '08. I now focus my investing energies on quality blue chip divi paying stocks and Vanguard/iShares index funds/ETFs.

  • Report this Comment On September 06, 2014, at 7:18 PM, Mathman6577 wrote:

    Dan: the key words you wrote were "pretty much" which implies that you sold some stock. I also happen to be a buy and hold guy for the most part too (I've actually owned one individual stock and an index fund for over 30 years). But the point I was trying to make (and the author dissed me for it) was that any relatively smart person could have forseen a market drop coming in the fall of 2008. Buy and hold is one thing but one has to have some flexibility too.

  • Report this Comment On September 07, 2014, at 7:34 PM, KayakerRW wrote:


    You wrote a great response: “The funny thing about making fun of someone's youth when you're unable to answer their question is that you end up looking like the immature one.”

    I remember that there were some articles in the first few months of 2008 about the possibility of a major correction, but they were mostly based on the fact that there is always a major correction, and I don’t recall anyone predicting the enormity of the 2008 crash (other than people who always predict that major crashes are coming soon).

    For those who are arguing that the fall of 2008 crash was predictable, I’ve love to see some actual numbers and math proving it, such as “in June of 2008, I converted 60% of my stocks to cash, and then began buying stocks again in January of 2009.”

    And I realize that it is possible that there are a few people who actually did that, so I’d like to see evidence that there were a large number of investors who did this.

    From what I recall, a lot of people started selling stocks and moving into cash once the market crashed, not before.

  • Report this Comment On September 07, 2014, at 10:14 PM, MrCheeryO wrote:

    Good stuff. 6.5 million net new payrolls 2001-present, that's some pretty slow growth. The really odd thing is the very slow jobs growth 2001-2008, before the collapse. About 6 million net new payrolls in that period, about seven years. Not too good.

    Anyone interested might want to check out Paul Krugman's latest thoughts on trade and secular stagnation. He thinks there might be something to that, he is working on it. Krugman, of course, is considered the preeminent expert in the field of international trade, a Nobel prize laureate. In the field of macroeconomics, in economics. For what that is worth.

    Very odd slow growth, more net new payrolls created 1977-1981 than in the last thirteen years or so. Of course the labor force was much smaller back then, so all the more odd. As I say, Krugman is looking into it. What it all might mean for growth in the future and for the US investor would be pure speculation.

  • Report this Comment On September 08, 2014, at 10:12 AM, TMFFischer wrote:

    Agree overall! I just have to keep in mind that there's survivorship bias, too. Things didn't get better if you lost your job and haven't found a good one since; or if you had to cash out of stocks in 2009 to pay your mortgage after losing your job, or what have you. Not disagreeing with the thoughts in the article (good truths throughout), but remembering that, unfortunately, for many history never smiles upon them quite the same again after some traumatic event.

    Like all things, there are always exceptions; that's part of what makes writing columns difficult. You can never touch on everything. :) Overall, things do slowly get better (or have for centuries, in many regards), and if not for certain individuals, then for the masses who are more fortunate, and for those able to keep a longer outlook.

  • Report this Comment On September 08, 2014, at 11:31 AM, KombatKarl wrote:

    It drives me crazy when I read comments everywhere about "this economy", inferring that it's a bad one. They clearly are not paying attention. This is one reason why I don't expect another crash anytime soon. Crashes seem to happen when everyone is euphoric, but despite what the market has done the last 5 years, very few are euphoric it, which leads me to believe that this bull market still has some room to run. The sports radio I show I listen to in the afternoon, the station has a woman from MSNBC doing market updates. When the market is down for the day she sounds like the world is ending. When it's up it's like "oh well, whatever".

  • Report this Comment On September 08, 2014, at 3:56 PM, hbofbyu wrote:

    9 million jobs lost in a one year with 10 million created over the next 5 years is better than nothing but otherwise is not an optimistic statistic when you consider immigration, population growth, and job quality.

    Questions that should be addressed:

    1. Has new job growth been greater than the number of new work force entrants+the bogus number they exclude of those leaving the workforce?

    2. Has new job growth exceed the growth of disability + food stamps+ medicaid + other welfare entitlements?

    3. Has the increase in the stock market and corporate profits correlated with an increase in wage growth and standard of living for the middle class and the poor?

  • Report this Comment On September 08, 2014, at 5:17 PM, MrCheeryO wrote:

    Warren Buffett is probably the best known example of the rational optimist, over reasonably long periods of time. I do think the rational optimist is rational in ignoring most of what goes on in the popular old media. One organization is devoted solely to spreading the news that everything is terrible all the time. Did a long bit the other day on all the problems that go along with an elite education. Those of that mind set will have no interest at all in the idea that anything positive is happening.

    The rest of the old media is mostly devoted to irrelevance. Flipped from the football yesterday and the President was in a long discussion on the issue: "Should the President regret playing golf?" The rational person will avoid these encounters at almost all costs. The Motley Fool has a long history on the generally poor quality of financial news reporting. The rational optimist will ignore most of that. Going by the numbers, the great majority avoid these media encounters. The total number of people taking the time to search out pessimism and irrelevance is tiny.

    I do think the rational optimist can be concerned with, for example, job growth numbers that are unusually week over five and seven and thirteen years. Not some monthly jobs report that is almost certainly +or - 100,000. Charlie Munger has expressed some concerns that the macroeconomists don't pay enough attention to higher order effects of trade, for example. A legitimate inquiry for the rational optimist, imo.

    Even allowing for some rational ignorance (ignoring much of what passes for the "news") not knowing whether the index is up or down in any given years just seems rather careless. Being that uninformed is irrational, imo. Still, the rational optimist, despite some problems, will focus on,

    Better Days Are Ahead For America

    It's been over five years now since the Great Recession hit the United States. During the past five years, Buffett has specifically commented and discussed his bullishness on America. Buffett's defends his claim with a simple point: During America's 238-year history, when has it ever paid off to bet against America over the long run? Per capita income continues to grow, America's free market system remains the absolute best mechanism for growth and prosperity, and the U.S. remains the most innovative company on Earth, having spawned Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL), along with globally recognized brands, such as Coca-Cola (NYSE:KO), Nike (NYSE:NKE), and McDonald's (NYSE:MCD).

  • Report this Comment On September 08, 2014, at 6:29 PM, hbofbyu wrote:

    Knowing that nothing is black and white, I need to take the other side for argument's sake - that we stay vigilant despite 238 years of glory (how long did the British Empire last?).

    Things that America is currently incapable of doing if it were asked of us to complete within the next 18 months:

    1. Fight a 2 front war.

    2. Manufacture an HD television (or monitor) or smartphone.

    3. Go to the moon.

    4. Protect our national borders (curb illegal immigration).

    5. Travel to the space station.

    6. Crack into the top 10 countries in math, science, and reading test scores.

    7. Raise life expectancy to above average for the developed world.

    8. Not be the most obese.

    9. Not carry the most personal debt in the developed world.

    10. (Worst of all) not have the highest lawyers per capita in the entire world.

  • Report this Comment On September 08, 2014, at 7:47 PM, TMFHousel wrote:

    Of those 10 (and these are the only ones I'm motivated enough to refute without researching):

    We do manufacture TVs in America:

    Mexico is the most obese:

    Illegal immigration is the lowest it's been in a long time:

    Norway and Netherlands have higher household debt/income:

    Private American companies can fly to the space station:

  • Report this Comment On September 08, 2014, at 9:02 PM, Mathman6577 wrote:

    However, private American companies and the government can't send a human to the space station. Only cargo. We have to rely on Russia to send our astronauts there.

  • Report this Comment On September 09, 2014, at 2:50 AM, hbofbyu wrote:

    Not that it matters:

    America is most obese (your link is from 2013)

    The CNN article you cite is about border crossings which is a subset of illegal immigration.

    I was wrong on debt and televisions. I heard it on ABC a couple of years ago.

    I constructed a meaningless list. Here is a better perspective:

  • Report this Comment On September 09, 2014, at 9:54 PM, tchams wrote:


    Will you be my financial advisor? I would like to know when to convert to cash before the next crash, and since I am not a relatively smart person such as you are, I will not be able to predict the next time the market goes down .5% let alone 20%.


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Morgan Housel

Economics and finance columnist for Analyst, Motley Fool One.
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