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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