Laws of Arithmetic: Questions From Dr. Al Bartlett

[20ppy]

Years back before I was a value investor, I watched his talk titled "Arithmetic, Population and Energy".

 

Recently, however, some of his views made me rethink about the laws of arithmetic. The 10% stock market growth for the last 60 years has been called the great tailwind in investing, but I began to think seriously about it.

 

I hope you would also find it interesting to begin thinking about these things and especially the questions.

 

His more recent interview

 

I have no intention to debase about his views, let's just think.

 

 

[randomep]

 

Ok I'll think with you. But first can someone summarize this 1hr video? I saw the first 5min and it was belabouring very obvious points... I just couldn't sit through the rest of the video.

[20ppy]

If it helps, watch "Arithmetic, Population and Energy" on youtube first so you know what he is talking about. As value investors, in order to be right even for new territories, understanding these issues would help.

[oddballstocks]

On the 10% number.  In the 1962 Security Analysis Graham goes into detail breaking down market returns.

 

He puts together the following:

 

Inflation + GDP growth + productivity growth + multiple expansion = market returns

 

If you have 2% inflation and 3% GDP growth and flat productivity you're looking at 5% returns or so.  I believe in the 90s we were looking at 3% inflation, 3% GDP growth a few percentage points of productivity gains plus multiple expansion.

 

The question you need to ask of a company is why are they growing faster than the country's GDP?  Is it because the market isn't saturated yet?  If a company is enormous then it's hard to imagine they grow much faster than GDP + inflation.

 

I also had trouble watching this interview, made it a bit further than 5m and bombed out.  Skipped around and it seemed more of the same.  Is there a great insight or two in there I should be looking for?

 

 

[Jurgis]

I did not listen to the whole interview yet. I think I have listened to "Arithmetic, Population and Energy" some years ago.

 

Is his point that a steady X% growth results in exponential (oh no, never use this word!  8) ) cumulative numbers? Like compounded interest for investor-types  8) on this forum?

 

Sure, this is known. And people remember this once in a while. Use it. Or misuse it. :) E.g. Apple (oh no, never give Apple as example  8) ) can't grow at 20% growth for X amount of years, since it would exceed GP (global product).

 

I think he says that economies can't grow forever at even 3% flat (after inflation), since at some point you run out of resources, etc.

 

He's right in abstract.

 

However, the growth is not flat; it will slow down. The population growth will stop at some time. It is possible - though not guaranteed - that economic growth will stop around that time. This would require a very different economic system perhaps to deal with perpetual "recession".

 

Some comments though:

- This won't come soon. Depending on existing GP growth, it could take another 20-50 years to get there (and I am taking the range out of my backside, so feel free to improve it via actual numbers).

- This has the same fallacy as with Apple - Apple might not be able to grow 20% absolute for X years, but for shareholder what matters is that it returns 20% per share in those years. Similarly if economy stops growing in absolute, but GP-per-person keeps increasing (in some way of measuring), this still could be a happy society. :) Possibly even happier than current one. :)

- We could find techno solutions to the "outgrowing the planet" and start outgrowing the Solar system. :)

 

Anyway just some random thoughts.

 

The future's so bright we gotta wear shades!  8)

[randomep]

 

 

- This has the same fallacy as with Apple - Apple might not be able to grow 20% absolute for X years, but for shareholder what matters is that it returns 20% per share in those years. Similarly if economy stops growing in absolute, but GP-per-person keeps increasing (in some way of measuring), this still could be a happy society. :) Possibly even happier than current one. :)

- We could find techno solutions to the "outgrowing the planet" and start outgrowing the Solar system. :)

 

 

Yes that's the key thing that doesn't get mentioned by these folks, share appreciation via stock buybacks and consolidation.

 

But occupying other solar systems........ I don't think so, I estimate it would take 3months accelerating at 10Gs to reach 1% of the speed of light, and you need to travel that fast to get to another solar system...... hmmm I don't think our bodies can handle it despite what star trek says......

 

[Jurgis]

But occupying other solar systems........ I don't think so, I estimate it would take 3months accelerating at 10Gs to reach 1% of the speed of light, and you need to travel that fast to get to another solar system...... hmmm I don't think our bodies can handle it despite what star trek says......

 

I was talking about this Solar system.

 

I would give at most 70 years for organic bodies. (And I believe immortality will be here in ~50  8) ).  So there's no rush to travel fast when you are non-organic and immortal.

 

We don't really know what will be modus operandi of these beings anyway.

 

(For sceptics, I am not 100% optimist. I see a binary future: there will be huge societal changes because of the above which may lead to pretty complete annihilation. But if we don't annihilate, then the "future's so bright we gotta wear shades".

 

And don't forget: if you have kids, they are likely to be immortal. Or dead. Wish them luck.  ;) )

[rkbabang]

But occupying other solar systems........ I don't think so, I estimate it would take 3months accelerating at 10Gs to reach 1% of the speed of light, and you need to travel that fast to get to another solar system...... hmmm I don't think our bodies can handle it despite what star trek says......

 

I was talking about this Solar system.

 

I would give at most 70 years for organic bodies. (And I believe immortality will be here in ~50  8) ).  So there's no rush to travel fast when you are non-organic and immortal.

 

We don't really know what will be modus operandi of these beings anyway.

 

(For sceptics, I am not 100% optimist. I see a binary future: there will be huge societal changes because of the above which may lead to pretty complete annihilation. But if we don't annihilate, then the "future's so bright we gotta wear shades".

 

And don't forget: if you have kids, they are likely to be immortal. Or dead. Wish them luck.  ;) )

 

I have the same view as you do.  We will either spread throughout the galaxy and eventually others or we will kill ourselves off completely in the next 100-500 years.

We will never be immortal though.  There is no such thing.  We may live a long time, hundreds or maybe even tens of thousands of years, but no human conciseness will survive for trillions of years.  You can only fight against entropy for so long. Sooner or later we will all be dead and so will your kids.

 

[Jurgis]

We will never be immortal though.  There is no such thing.  We may live a long time, hundreds or maybe even tens of thousands of years, but no human conciseness will survive for trillions of years.  You can only fight against entropy for so long. Sooner or later we will all be dead and so will your kids.

 

Right, I was using a shorthand word "immortal" for "you won't die for very long unless your physical container and your backups get destroyed or subsequent upgrades make you not-really-you anymore and let's account for the thermal death of the universe somewhere too"  8)