(Extracted from What I Believe Least by Morgan Housel)
I believe past performance is not an indicator of future returns. Markets change, history surprises, and performance is cyclical.
But it’s one of the things I believe least, because past performance over a long period of time likely reflects structural facts about an asset, country, or company that can be enduring.
Why has the United States been an economic success? Part is an entrepreneurial culture, which can change overnight in a way that offers no assurance of future success.
But part is more enduring. It might sound silly, but having a ton of land endowed with tons of natural resources buffered from long-time foes by the world’s biggest oceans on both coasts is responsible for more of our prosperity than we think. I don’t know how much. But if you know the history of countries who are just as capable as Americans but have been ravaged by battle every few generations you know how devastating the after-effects of war are, in both infrastructure and culture.