The Bar Only Gets Higher

Imagine trying to build wealth in the United States in 1950. If you were a man, you got a job, bought a house, and went from there. This was an era where you could walk into a company’s offices, ask the CEO for a position, and actually get it. This is how Warren Buffett met Lorimer Davidson, a GEICO executive (and the future CEO), who taught him about the insurance business over a few hours on a Saturday in 1951. At the time, access was easier and competition in the labor market was limited.

By the mid-1960s, however, things began to shift. The Civil Rights Act of 1964 made it illegal to discriminate in hiring based on race, sex, religion, and national origin. While this didn’t immediately level the playing field, it marked the beginning of a broader labor market.

Then, the sexual revolution of the late 1960s brought more women into the workforce. According to the Bureau of Labor Statistics, the female labor force participation rate increased from 34% to 57.5% between 1950 and 1990:

Within a couple of decades, the competition for jobs expanded dramatically, which put downward pressure on wages.

And this isn’t just theory either. One study used WWII as a natural experiment and found that a 10% increase in female labor supply reduced women’s wages by 6-7% and men’s by 3-5%. More recent work shows that as an occupation becomes more female-dominated, average wages in those fields decline for both men and women.

But things didn’t stop there. As globalization accelerated in the 1980s and 1990s, American workers started to compete with workers abroad. Manufacturing jobs went overseas and white-collar industries like software engineering began to face wage pressure from programs like the H-1B visa. This program expanded the supply of lower-cost foreign labor in high-skill industries.

And today, the challenge is even greater. Remote work made location less relevant and humans now have to compete against machines, not just other humans. The rise of AI and large language models (LLMs) means that some jobs can now be fully or partially automated at little to no cost.

Think about this transition. We’ve gone from competing with a small group of local peers to competing with the entire world and their computers. This is not to say that we should “go back” to an earlier era. But it helps explain a lot of the trends we are seeing today.

Why does Gen Z feel like they are struggling to build wealth?

Why are housing prices so elevated, especially in major cities?

Why does it feel harder to find a job than ever before?

The answer is the same: the bar only gets higher. This is true in the labor market, the housing market, the dating market, and beyond. In almost every avenue of our lives, the competition has increased dramatically over the past several decades.

For example, if I only had to compete with Americans when buying an apartment in New York City, the prices would be lower. But I don’t. Though foreigners only represent about 1-2% of overall U.S. existing home sales, those sales are heavily concentrated in large metropolitan areas. In fact, it was estimated that 20-25% of luxury condo developments in New York City went to foreign buyers before the pandemic. 

This competition for assets goes beyond real estate as well. Roughly one-fifth of the U.S. stock market is foreign-owned, meaning that even when you’re investing, you’re competing with global capital. According to the Treasury, foreign holdings of U.S. equities reached $17 trillion by June 2024, representing roughly 18% of the U.S. equity market. More importantly, this percentage has nearly doubled since 2007 (see the black line and right axis):

Just like foreign purchases of New York condos can push up home prices, foreign purchases of U.S. stocks can push up equity valuations. While these higher valuations might benefit you now, I’m cautious of what this could do to longer-term returns.

This same intensifying competition has reshaped the investing landscape over the last century as well. Opportunities that were available in the past simply aren’t available today. For example, in the 1950s you could’ve bought companies selling below their net current asset value (“net-nets“). That’s like buying a suitcase for $50,000 knowing there’s $100,000 inside it. All you had to do back then was get the data.

Today, net-nets are basically extinct. Why? Because there is an army of active managers (and their even more active computers) hunting for value anywhere they can find it. As a result, $50,000 suitcases with $100,000 in them just don’t exist anymore. This doesn’t mean that there’s no alpha left in markets, just that the alpha is much harder to find.

So what do you do in a world where the bar keeps getting higher?

I’ll tell you what you don’t do. You don’t give up. You don’t say, “There’s nothing I can do.” Because that is guaranteed to fail. It’s guaranteed to leave you in the same place as before while the world gets even more competitive.

Instead, you should focus on what you can control. This includes: your effort, your discipline, and your attention. You can’t change U.S. home prices, but you can change how you save. You can change how you think about your career. You can change what you spend your time on.

Most people already know that things are getting harder. This isn’t a revelation. However, many of them use this as an excuse to give up.

But, if anything, this information should produce the opposite reaction. Because it implies that there’s still an edge in not giving up.

I know from personal experience. I’m not the best writer. I’m a terrible marketer. In fact, my second book, The Wealth Ladder, had fewer pre-orders than my first, Just Keep Buying, despite me having more followers. I was ignored by every major financial media outlet for most of my writing career.

I could sit and dwell on these things, but I don’t. Because I have an edge—I don’t give up. Trends will come and go, assets will rise and fall, but I’ll still be here writing. I won’t give up. 

And you shouldn’t either. Because the one thing that is hard to beat is someone that keeps showing up. I know it’s the most cliché thing to say, but my career is built off of that idea. Just keep writing and the rest will take care of itself. Or, as my friend Carl likes to say, “The pen will set you free.” 

So let the bar rise, and rise along with it. Happy investing and thank you for reading!

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This is post 467. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data

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