The U.S. stock market is down just over 3% since the recent peak on July 16th.

The media is having a field day.

The truth is that, on average, the market drops 3% or more ~7 times per year.

In other words, the recent market volatility is "normal" and should be expected by investors. 😊

In today's email:

• How ideas compound
• Why progress is hard to predict
• What innovation teaches us about investing

Let's dive in!

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How Ideas Compound

In 1440, Johannes Gutenberg invented the printing press, which is widely considered to be one of the most influential events of the second millennium.

Because the machine could print text 90x faster than prior methods, it drastically reduced the cost of producing books.

One unexpected consequence of producing more books was a surge in the need for glasses as people discovered they were farsighted.

This new demand for glasses drove innovation in spectacle lenses, ultimately leading to the invention of the microscope.

With the microscope, scientists could see that our bodies were made up of microscopic cells and discovered bacteria and other pathogens.

These discoveries naturally led to breakthroughs in combatting human illness, saving the lives of tens of millions of people.

The idea that the invention of the printing press had anything to do with saving millions of lives might seem like a stretch, but this is how progress works.

It's a non-linear process in which an invention or discovery in one field spurs inventions and discoveries in another.

As one more example of this type of progress, about 10,000 satellites orbit the Earth, serving various functions as we speak.

None of them would have been possible without the Wright brothers' first combining ideas from multiple fields of study.

To build their "flying machine," they used a gasoline engine, a propeller powered by a crude bicycle chain system (they were bike mechanics), and Bernoulli's principle of fluid dynamics.

It’s incredible how far we’ve come.

Author Michael Mauboussin explained this phenomenon of innovation and progress in his book More Than You Know:

Given that the world's collective knowledge is expanding at an incredible rate and is being shared nearly instantaneously via the miracle of the internet...

...Mauboussin's logic would suggest that progress is more likely to accelerate than slow down.

That belief may run counter to today's popular predictions of doom and gloom, but how could this not be the case?!

The very idea that a small discovery in one field might hold the key to an incredible discovery in an unrelated field is hard to fathom.

But that's the nature of progress, as the two examples above illustrate.

One thing leads to another, which leads to another.

These unforeseeable connections help explain why progress is impossible to predict but, equally, why progress is likely to continue into eternity.

Future Investment Returns

If you're wondering what today's email has to do with investing, the answer is that it has everything to do with it!

Simply stated, successful investing is an act of faith that the future will be better than the present.

And the best way I know to nurture that faith is to occasionally review how progress happens in the real world so that we can easily see why it's likely to continue.

At its core, future investment returns are dependent on this continued progress.

The public markets are nothing more than a vehicle for financially participating in the progress we believe is coming.

Admittedly, we can never know precisely how the future will be better than the past, but we can—and should—believe with confidence that it will be better.

The entirety of history and logic support this perspective, and that is why I continue to be optimistic about the future.

Stay wealthy,

Taylor Schulte, CFP®