When the HMS Prince of Wales went out into the South China Seas in December 1941 without any air cover, no one thought it was particularly foolhardy. After all, this battleship was one of the most sophisticated, powerful, heavily armed military vessels ever built. Dan Carlin of “Hardcore History” describes the Prince of Wales as a “mid-century Death Star” and a “naval killing machine.”
One could almost excuse the overconfidence. After all, the very point of the Prince of Wales’ being in the region was to project power. So imagine the surprise when this ship—one of the mightiest on earth—became the first example of a battleship being sunk by airplanes.
By 1945 the entire world knew that sending a battleship into combat without aircover was tantamount to suicide, but it had taken an example or two (or 100) to learn that the anti-aircraft weapons on a battleship were insufficient in fighting off actual aircraft.
The term for such a change in how war is waged is called a “Revolution in Military Affairs”: a development, usually technological in nature, that renders obsolete pre-existing military methods and technologies.
To me, one of the more fascinating things about Revolutions in Military Affairs is that they aren’t instant. There’s this resistance to recognition, certainly driven by the pride and self-interest of people for whom a change from the status quo represents a negative outcome as well.
Or as legendary philosopher Marlo Stansfield put it “You want it to be one way. But it’s the other way.”
There’s a whole lot of “it’s the other way” going on at the moment, and it bears calling out, for what we are seeing right now is a form of “revolution in economic affairs.” And just to make any prognostication more difficult, at the moment there isn’t just one taking place. There are at least two.
DeGlobalization
A third term. A leader who prioritizes loyalty in making appointments and firing others. Forcing the largest domestic companies to heel. A country turning its back on foreign partners and demanding that they do more. An economic realignment that lowers economic efficiency in the name of protecting or promoting domestic constituencies.
Possibly this sounds like a rundown of the United States in 2025, but in this case we’re talking about China, from 2022. I wrote an article about it for our sister company, The Motley Fool, LLC, at the time.
The parallels between 2022 China and American economic policies today are not just obvious to me but also mutually reinforcing. Convinced that we’re facing a more dangerous future, the United States’ leaders are focusing economic policies on replacing a global supply chain system that prioritized economic efficiency with one that offers more redundancy and lowers our vulnerability to the multi-variate threat of China.
It is perhaps axiomatic to point this out, but a global supply chain that prioritizes something other than economic return will probably be more expensive and offer lower returns on capital. Many of the largest constituents in the S&P 500, with businesses as varied as pharmaceuticals, fertilizers, and technology, have outsourced some or substantially all of the crucial components in their supply chain to China. Billions of dollars of fixed assets around the world will likely need to be abandoned, to be replaced by billions of dollars of fixed assets in other places. There is no quick fix.
To achieve this, governments will likely need to borrow and spend, which means that a global financial system, already straining under massive leverage, may need to become even more leveraged in order to achieve economic growth. It’s hard to overstate how different the new world economy could look as this revolution continues.
A.I.
Dario Amodei, the CEO of Anthropic, claimed recently that artificial intelligence is an astounding technological revolution that has the power to speed up cures for cancer and promises massive growth.
Amodei further says that the producers of AI technology have a duty and an obligation to be honest about what’s coming: he believes AI could wipe out fully half of all white collar jobs and cause unemployment to rise to 10–20% within the next five years.
“Most of them are unaware that this is about to happen,” says Amodei. The jobs at greatest risk are the kinds of entry-level jobs that are so crucial to people in their 20’s starting their careers. A recent New York Times article bears this out: “I’m a LinkedIn Executive: I see the Bottom Rung of the Career Ladder Breaking.”
The societal implication of the disappearance of entry-level positions is profound, as these jobs have long served as a way to level the playing field. How will young college graduates who lack privileged networks find their way?
What to do?
Ultimately none of us get to choose whether these revolutions will happen or whether their upsides are worth their downsides. In the exact same way that the developers of the personal computer had neither vision into nor control over how it would ultimately be used, these changes, once released, fly on their own.
Is an economic system that’s more hardened against bad actors and produces things like fully self-driving vehicles and cures for intractable diseases a reasonable trade off for lower capital returns and 20% unemployment?
I try to avoid putting too much political thought—or maybe more accurately partisan beliefs—into my investing. Politics often comes with a reality distortion field around it, which makes the job of being a security analyst that much harder. What we’re talking about here, though, are the downstream implications.
Our industry places great favor on those who most decisively see things as they are, including how they’re changing. Decisive clarity means recognizing the largest trends, figuring out what the potential return on investment for those companies we believe are best suited to taking advantage of those trends is, and remaining steadfast while this happens.
One of the features of Foolish investing is a stubborn commitment to holding high quality companies that we feel are profitably addressing the great challenges and opportunities in the global economy and a reluctance to move away from them until it’s obvious that our prior confidence was misplaced.
It, of course, means that a perusal of our portfolio will identify some real clunkers, proof that, for example, our prior belief that remote medicine would develop in a certain way was woefully wrong.
Perhaps conversely, this means that sometimes we are really, really early, so much so that we may spend years waiting for our bets to pay off.
This is a feature, not a bug.
Decisive exposure to these kinds of successes has historically overwhelmed the negative outcomes they’ve experienced when their analysis of companies has made that transition from “maybe this isn’t going to work” to “this is obviously not going to work.”
Given the speed and intensity of technological changes—and the revolution in economic affairs we’re experiencing—we should expect our futures to be almost unrecognizable compared to today.
If you’d told me a decade ago that I would trust a self-driving car to get me from Vienna, Virginia to downtown Washington, DC without touching the wheel, I wouldn’t have believed it possible. Yet advancements in full self-driving technologies over the last year mean that this is where we are.
If we have enough committed and stubborn exposure to components of the market that are benefitting from deglobalization and AI, among other revolutions, rather than suffering from them, our returns should, given enough time, be highly satisfactory.
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