“The American stock market is similar to watching a person walk up the stairs with a yo yo. People focus on the yo yo going up and down, while the real story is the consistent movement of the person up the stairs.”
– Tom Lewis
One of the most important mindsets which is absolutely critical for anyone who wants to become a great investor…Optimism
To become a great investor, one must maintain a fundamental faith in the future, and that things will continue to get better in the world over time. In the words of Tom Lewis, we must always focus our attention on the world’s slow, consistent and inevitable climb up the stairs of progress.
Because our investment discipline is tactical in nature, and sometimes calls for us to rotate our portfolio allocations away from risk assets, it can at times cause us to lose sight of this important fact. Of course, our active management is an attempt to soften the impact of some of the intermediate term downdrafts of the “market yo-yo”, but this strategic management should not cause us to lose sight of the fundamental reality that, in the long run, things will get better for mankind, and that asset prices will reflect this progress.
Of course, we are aware that there is no shortage of reasons to feel afraid and pessimistic about the world today. Simply open a newspaper or turn on the television, and you will be bombarded with bad news, and a scary outlook for the future. We can only wonder which dark calamity will cause the demise of the world as we know it, and the destruction of our quality of life. Will it be global warming that makes our planet uninhabitable? Will it be the runaway spending of Washington DC politicians which will cause an economic meltdown? Will it be the rise of violent civic unrest driven by economic inequality that plunges the world into anarchy?
Pessimism is indeed in a Bull Market in the world today.
This month, we thought it might be useful to take a look on the “Bright Side”, and to make the case for Optimism. In so doing, we will summarize the outstanding new book by Matt Ridley, called The Rational Optimist, which makes a wonderful case for a great future.
Fashionable Pessimism
Throughout history, it has been fashionable, “Smart” and intellectual to be pessimistic, while optimists are generally considered naïve and childish. Ridley’s book chronicles centuries of famous “intellectuals” who were considered the great thinkers of their time because of their convincing dire predictions for how the world was headed for imminent disaster. Moreover, Pessimists possess a unique skill known as “turning point-itis” which enables them to ignore and explain away the facts of human success. Every generation of pessimists proposes that, despite a long history of progress, we are now at a “turning point” in human history, and that the future will be different than the past. In the words of Matt Ridley:
defining moments, tipping points, thresholds and points of no return have been encountered, it seems, by pessimists in every generation. A fresh crop of pessimists springs up each decade, unabashed in its certainty that it stands balanced upon the fulcrum of history. They wail that society has reached a turning point – we have seen our best days.
“Turning Point – itis” is a necessary weapon in the arsenal of the pessimist, because his views are in direct contradiction with the facts. Consistent and relentless improvement in quality of life has been a central fact of human existence for the last 100,000 years, a fact which is difficult for the “Intellectual Pessimist” to explain away. Because pessimism has been so foolishly wrong, its practitioners must use “Turning Points” as an explanation for why NOW is the time that things are going to suddenly change from constant improvement to sudden deterioration. Consider the dire predictions in just the last 50 years – the life span of many reading this article – which have been proven laughably wrong
- During the Cold war, it seemed only a matter of time until the nuclear arms race would lead the world to mutually assured destruction. No such disaster occurred, and in fact nuclear arms have been since drastically reduced.
- Starting in the 1950’s many leaders in the field of medicine predicted that the rise of the use of chemicals would lead to an uncontrollable epidemic in cance