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Set for a decade of extraordinary innovation

Recent years have reminded us how unpredictable our world is. Unknown pandemics and unexpected wars have blown our best-laid plans asunder.

For investors the unknown perils and known perils of our world can often cause us to approach the future with scepticism, even fear.

As we enter 2024, we could choose to focus on high interest rates, instability in the Middle East and the war in Ukraine. We could focus on the impending uncertainty around coming elections in both the United States and the United Kingdom. Problems come and problems go.

Yet the extraordinary thing about investment is just how well stock markets have done for the past 130 years despite everything the world has thrown at them.

In fact, had we chosen to ignore the bad news and just left a portfolio invested for a century we would have enjoyed returns on average of around 8% a year from shares.

So, what is the magic ingredient that has enabled stock markets to rise through world wars and seismic global changes? What is the magic ingredient that could give us cause to be optimistic about the future even with the storm clouds that we can see for the year ahead?

One word holds the key here: productivity. The reality of human society is that whatever goes wrong in the world ordinary people have found ways to make themselves more productive day to day and it is this productivity growth that has fuelled economic growth since the Industrial Revolution.

There are moments in time though when the steady productivity growth that ordinary folks manage gets turbocharged. The charge comes from key breakthrough technologies – appearing suddenly to radically improve the productivity levels of society.

Today we stand on the threshold of the Artificial Intelligence revolution and the accelerated computing power behind it.

With financial institutions, academics and politicians optimistic about the potential of Al, on the face of it this creates a promising backdrop for any investor. Except of course that we know that these breakthrough technologies come with a catch for investors.

They have a capacity to create dangerous bubbles which are great all the way up until the moment they pop. Those who have been investing since the early 2000s will remember the collapse of internet technology stocks. They crashed not because people had overestimated the impact of the internet – if anything it has been underestimated. They collapsed because it took longer than people anticipated for the profits to come through and indeed was harder than they imagined to identify where the profits would occur.

For investors the next decade involves shrewdly exploiting this period of extraordinary productivity growth that can occur, whilst avoiding the many companies that will fall by the wayside on the journey and ultimately not being in a bubble when it pops.

Discipline, cold-headed valuation work and a long-term view will be vital to ensure the next decade is one of opportunity and not threat for investors.



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