As readers celebrate the July 4 holiday with family, we’re reminded that for nearly 250 years, the United States has been an engine of invention, innovation, and growth. Over time, new industries have formed, productivity has improved, living standards have risen, and companies have been created, scaled, merged, disrupted, replaced, and reinvented.
One of the remarkable features of U.S. innovation is that it rarely comes from a single invention or a single company. History shows that progress builds in layers, with one breakthrough creating the infrastructure for the next. The integrated circuit, for instance, started as a practical solution to a physical problem, which was that computers could not keep growing if every connection had to be soldered by hand. By shrinking electronics onto microchips, it helped make possible everything from space exploration to factory automation to smartphones and artificial intelligence.1
The automobile offers another example. Henry Ford did not invent the car, but the Model T and the moving assembly line changed the economics of transportation. By reducing assembly time from more than 12 hours to roughly 90 minutes, Ford helped turn the automobile from a luxury product into something much closer to a mass-market good.
Throughout history, the U.S. economy has been remarkably good at taking ideas and building systems around them. These systems take the form of factories, supply chains, financing mechanisms, distribution networks, public markets, consumer ecosystems, etc. The result is that inventions become industries, and industries become sources of earnings, employment, productivity, and wealth creation.
But perhaps the most remarkable feature of it all is that everyday investors can ‘own’ a slice of the U.S. economy and all the innovation and growth it creates. I’m referring, of course, to our ability to buy stocks.
What’s more, investors do not need to identify every breakthrough company in advance to participate in American innovation over time. It is not necessary to correctly predict which single stock will dominate the next decade. A diversified equity portfolio, which is accessible for anyone who wants to invest, provides exposure to the evolving American growth engine while reducing the risk that any one company, product, or theme fails to live up to expectations. How great is that?
As we look ahead, artificial intelligence may be the next major chapter in this long American innovation story. There will be disruption, and some jobs and business models will undoubtedly change. But investors should be careful with the idea that every task or industry touched by AI will simply disappear. That has not been the pattern with major technologies before, and though much remains unknown about AI’s ultimate impact on the economy, I doubt the ‘AI jobs apocalypse’ is nigh. Computers did not eliminate work as many believed they would. There are over 250,000 data scientists in the U.S., for instance, a job that did not exist prior to the computer’s invention.
For investors, the long-term thesis for equity ownership can boil down to a single question: whether the U.S. economy still has the capacity to turn innovation into long-term growth. History suggests it does, and I would not bet against this history.
Bottom Line for Investors
American innovation and economic growth have been powerful forces at work since our country’s founding. But 250 years of spectacular growth does not mean the path has always been smooth.
The country has also endured recessions, depressions, wars, inflation shocks, banking crises, political uncertainty, market crashes, speculative bubbles, and countless periods when investors had good reasons to feel uncertain about the future. Many would argue we’re living in one of those periods now, with artificial intelligence raising big questions about jobs, productivity, and the economy.
The investor’s job is not to predict every breakthrough or identify every future market leader in advance. The investor’s job is to stay positioned to participate in the broader system that turns innovation into growth, which in my view, means investing in stocks. The stock market is not a perfect reflection of American innovation, but it has historically been one of the most accessible ways for investors to participate in it. Owning equities means owning a claim on businesses that are adapting, competing, investing, and creating value in an economy built on reinvention.