The year was 1929, just days before the infamous stock market crash, and renowned economist, Irving Fisher, famously declared that the stock market had reached “…a permanently high plateau.” While history proved him wrong in the short-term, as the Great Depression soon followed, the concept of a perpetually elevating stock market is an important topic for discussion in today’s economic climate.
The idea of a permanently high plateau implies a point of market equilibrium where stock values have stabalized and continue to grow at a sustainable rate. Fisher’s statement is often interpreted as an over-optimistic view of the infallibility of the stock market. However, a more nuanced understanding offers us a perspective of continuous progress, where the stock market, despite occasional downturns, trends upward over longer periods.
Key to grasping the concept of a permanently high plateau is understanding the cyclical nature of the stock market. The stock market has faced numerous recessions and depressions, each followed by a recovery period. While the severity and duration of these downturns fluctuate, the upward trend in the long run remains consistent. Over the past century, the stock market has proven resilient, recovering from every crash and reaching new heights.
The fundamental drivers of this resilience are economic growth and inflation. As economies expand, corporate profits rise, leading to higher stock values. Simultaneously, inflation gradually depreciates the currency value, thereby increasing the nominal price of stocks. These factors provide a mechanism for the stock market to rebound and grow, supporting the notion of a permanent high plateau.
Another crucial element underpinning this theory is the role of technological advancements and innovation. They have been instrumental in fueling economic prosperity and stock market growth. As industries evolve and adapt to new technologies, they create opportunities for businesses to thrive and, in turn, for investors to profit. As history has shown, the advent of industries such as automobiles, aviation, internet, or more recently, blockchain technology, can spur significant stock market growth, pushing it towards new plateaus.
However, the theory is not without its caveats. Believing in a permanent high plateau does not mean rejecting the possibility of market crashes or financial crises. On the contrary, these are integral parts of market cycles. Fisher’s theory warns against complacency, reminding investors to maintain a long-term perspective and remain conscious of market volatility and potential risks.
Moreover, the phrase permanently high plateau should not imply infinite growth. The phrase does not suggest that stocks will always rise or that big downturns will never occur. Instead, it fundamentally points to the idea that despite fluctuations and occasional major downturns, the stock market will always find a way to recover and reach new highs, upholding an upward trend in the long run.
To put it succinctly, the mindset of a permanent high plateau encourages an approach to investing that emphasizes patience, resilience and constant vigilance. It encourages investors to weather short-term downturns and keep faith in the market’s long-term potential. Ultimately, whether the stock market has reached a permanently high plateau remains a debatable question. However, the notion remains a powerful reminder of the market’s resilience and its capacity for growth over time.
