The rewards of taking the long view...
IN 1881, Dakota Territory had never sold a bushel of wheat to anybody outside of Dakota. Six years later, it sold 62 million bushels, writes Chris Mayer for the Daily Reckoning.
I recently read Garet Garrett's The American Story, which came out in 1955. It is a well-written history of America, unusual because of its emphasis on the powerful economics that drove the country to great heights. Garrett tells the Dakota story in this book, which is a useful reminder about how economies grow and prosper.
What happened in Dakota was that farmers invested in machinery. The riding plow, the reaper and the combine harvester made the farms far more productive than they had been. Suddenly, the labors of one man could produce 5,000 bushels of wheat. A single miller could turn that wheat into 1,000 pounds of flour.
But that was not all. New railroads connected the farmer to the mill and the mill with markets and ports in the East. The energies released were enormous. Garrett writes:
"So the labor of four men — one a farmer in Dakota, one a miller in Minneapolis and two on the railroad — plus a very low rate for ocean carriage — could put into Europe enough flour to feed 1,000 people for a year."
Let's look at another example: steel. In 1870, there was nothing anyone would call a steel industry in the US Americans bought their steel from Europe. Yet 30 years later, Americans would produce more steel than Germany, France and England put together.
Again, the investment in machines and rail and roads unleashed a torrent of once frozen economic potential.
Those forces worked wonders as a free people tinkered, invented and created. "In sheds and attics and little machine shops everywhere," Garrett writes, "with sticks and strings and glue and bits of metal, eccentric minds were making models of things that might work, either to save labor or to save time — two thoughts with the same meaning."
Steam drills. Sewing machines. Electric lamps. Rotary printing presses. Cranes and elevators. Steam engines. Steel ships. Air brakes. Plumbing. Refrigeration. All of these things came in the years that followed.
Millionaires sprouted up like mushrooms. "Most of these new millionaires had come from the ground — from the mines and steel mills and oil wells and packing houses — and smelled of their work," Garrett writes.
Wall Street financed great undertakings that would be beyond the power of five or six rich men. Huge sums of capital went toward growing the new industries. Many of the larger enterprises now had public stockholders.
The first billion-Dollar company in America was United States Steel, stitched together by J.P. Morgan. It owned not only steel plants, but coal mines, limestone quarries, ships, railroads and whatever else touched on steel.
Wall Street sold it to the public for $40 per share. Then it fell to $9. But a few years later, Wall Street was buying it back from the public at $100 per share. And soon it topped $200. It was a heady, risky time. If you bought five stocks, odds were that two might go to zero. But the three, held long enough, produced fortunes.
This is the work of a free people. Testing things. Trying them out. Succeeding and failing. It is a rough laboratory from which winners and losers emerge through trial and error. It is what builds great wealth, great economies and great countries.
It is the American story of two centuries past.
While there are no virgin places for a new American story to take root, no empty continents where a people might go to try to build something from scratch, there are new versions of the American story unfolding in places likely to produce astounding wealth in similar ways.
In places like Mongolia or Myanmar, for example, you find today's Dakota Territory. Not that Mongolians are as free as those American pioneers, but there is so much frozen potential to unlock by applying technology and know-how and capital to their situations. It's these mind-bending changes — and the lure of profiting by them — that attract me to explore the world beyond the developed West.
In 10 years, for example, Mongolia may well be among the richest countries, on a per capita basis, in the world. Along the way there will be a number of profitable opportunities.
Investing in Mongolia along with other ideas I've shared with my readers, I expect, will be very up and down, much like the US Steel example in the American story. But the long-term trends here are undeniable and will take years to fully play out. You have to believe in the big-picture idea. You have to trust that a few companies are doing the right things in the right places.
I know it is hard to take the long view. I get panicky emails all the time from readers who fret over this or that stock because it is hasn't gone up after six months or a year. I know most people will not follow me no matter what I say. They will own a stock for a few months or maybe a year, and when it doesn't pan out (or even if it does show a profit), they will sell out. On to the next great thing!
But in the real world, great stories unfold slowly. As with the American story, they take their time in the telling, with many digressions along the way. Learn to enjoy the story and think long term. Don't get distracted by the daily and weekly march of news and prices.
Keep your sights on the grander story and stick with the original thesis as long as it remains valid!
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