I Choose To Be Optimistic
The difference between an optimist and a pessimist? An optimist laughs to forget, but a pessimist forgets to laugh.
Tom Bodett
I often find that investors often consider “bearishness” and "pessimism" to be synonyms. Any time I’ve shared a cautious tone in my own work, I’ve often gotten questions along the lines of, “Why are you being so pessimistic?”
Bullishness and bearishness for me are temporary states. I may be bullish on stocks for a particular time frame because the weight of the evidence tells me that conditions are strong. But if and when the evidence changes, like defensive sectors beginning to outperform, then I’ll change to a more bearish outlook.
Optimism for me is not a temporary state, but an overall mindset, perhaps a way of life. I try to remain optimistic when I feel conditions crumbling around me, just as I’m optimistic when things look pretty good. It’s a belief that things will get better.
Even in the most dire market circumstances, the market has eventually recovered. And I’ve been through some pretty seriously bearish environments, from 9/11 to the Great Financial Crisis. Even then, I’ve stuck with optimism that things can and will get better. And even though those periods were challenging in the short-term, things did get better.
But investors can get into trouble when they think being optimistic means you should ignore risk management. Even if I’m optimistic that this economy will thrive for many years beyond 2025, that doesn’t mean I should ignore clear signs of growing risk if I detect them. The charts will tell you quite clearly when conditions are not great for risk assets! And being a long-term optimist does not mean that we ignore warning signs.
Believe in the long-term strength of the markets, but also recognize that it’s not a straight line. Setbacks and drawdowns will happen. Just remember, they are temporary.
I was taught that “hope” is a four-letter word for investors. “Hopium is not an investment strategy” is another one I’ve heard thrown around. But I choose to be optimistic.
I choose to believe that dark moments are often what we experience before some of the brightest days. I choose to remain ready for signs of short-term weakness, but I also choose to remember the most important lesson of market history: that the long-term trend for the markets is up.
Mindless investors let their general optimism or pessimism impact their investment approach, leading to confirmation bias and a lack of preparedness for market corrections.
Mindful investors know that the market moves on multiple time frames, that short-term weakness is temporary in the grand scheme of things, and that the markets will recover.
RR#6,
Dave
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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.
