Lao Tzu said: “Those who know do not speak; those who speak do not know.” Never is this more true than on Wall Street, where pundits make all types of useless predictions. They’ll be right occasionally—in the same sense that a broken clock is “right” twice a day.
There’s just no way to predict markets or economics. That’s the first noble truth from Warren Buffett, the world’s greatest investor. The phrase “market outlook” is nonsensical because you can’t have an outlook about markets any more than you can have one about the next turn of the roulette wheel. So first, know what you can’t know. The second truth is that the best asset worth buying is always a wonderful company at a fair price. No other trend matters. No other mission. If you keep your eye on that simple advice, the investing path becomes clear. People have little trouble spotting a wonderful company, but too often they forget the second prong: its valuation. Ignore the price-to-earnings ratio or the intrinsic value (as determined by the underlying cash flows), and you’ll be wiped out in a bear market.
And a bear market is always around the corner. No one can tell you when, but you have to be prepared—by having the right asset allocation for your personal time horizon and risk preference. Threats loom everywhere: the Fed’s independence is under attack. Unemployment is now rising with inflation still above the Fed’s target rate of 2%. At some point, psychology shifts and that which looked promising now looks menacing. The market’s current complacency will turn to panic. Again, no one knows when, so timing the market is useless. Owning good quality assets at a reasonable price—and in the right allocation—is what counts.
The market has been buoyed by the promise of artificial intelligence. Much of the hype is justified. It won’t only benefit companies at the heart of the revolution like Alphabet and Microsoft. As with the advent of the internet, it will benefit every business through cost-cutting and increased efficiency. We’re already seeing the result at companies like Walmart, whose CEO Doug McMillon said recently that AI will change everything. Headcount will stay the same over the next few years, but that will mask an underlying sea-change: many workers will be replaced by AI, while some will be retrained for it. Many others will be hired to deploy AI across every aspect of the company. The potential for ordinary companies to increase profits through AI-driven efficiencies is astronomical.
Of course, any new technology sows disruption. A recession is inevitable as unemployment rises in the first sustained bout of structural layoffs. But every breakthrough technology like AI also provides the fertile soil for enormous job creation via the new, new thing. This churn leaves many workers behind, but benefits others. People extrapolate to a world with no jobs. 100% unemployment looms large. But these predictions never come to fruition.
Consider the last time a technological innovation reduced the net long-term number of jobs: when was it?
The answer? Never.
The job market has always grown long-term, through the advent of the printing press, mechanized loom, telegraph, railroad, telephone, radio, microchip, mainframe, personal computer, internet, and so on. At every point of tech innovation, Luddites have predicted the end of workers. But it never happened. That’s why the unemployment rate is lower today than it was a century ago, despite large increases in population. As a white-collar revolution, this particular one terrifies the intellectual class. But tech breakthroughs always create new opportunities for employees. The skill set just moves up the complexity curve.
As McMillon said, he sees vast opportunities from AI, but he still plans on having humans sell to humans. Once robots do the shopping themselves and make the purchasing decisions with their own money, he said it might make sense to have robots doing the selling. Until then, he’ll keep human employees walking the aisles.