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I’m an optimist. And proudly so. Perhaps too optimistic, but that’s a risk I’m willing to take.
Having this mindset and reflecting on how I engage with money, and the world more broadly, got me thinking of two things.
Firstly, it takes a lot of work to remain an optimist in the modern media landscape. The default position of financial media is that bad news is either here or right around the corner. If the market is down, that’s a disaster. If the market is up, it’s probably a bubble and will crash soon. No media outlet ever made money with an article entitled “Everything looks OK at the moment”. So I find myself looking for information, and in particular hard data, that zooms out from today’s minutia and provides a broader, longer term perspective. As an example, current “AI bubble” talk might suggest that valuations are crazy high. But looking at P/E ratios for the last 20 years give a more sober story. Yep, higher than normal. But well below 2002 and 2008. So we are probably due a correction, maybe a bear market that lasts a year or two. But a catastrophic crash? Perhaps a bit less likely.
Outside of finance, I also work hard to find long term, robust data that gives a more complete view of the world than today’s headlines. My absolute favourite is “Factfulness” by Hans Rosling et. al. This is an amazing book that shows how humankind is progressing in so many ways. Mr. Rosling, a Professor of International Health and now deceased, recognizes that many things in the world are still not great, but he often notes that things can be “bad but getting better”. And this books shows that we are getting better by so many measures. There is also a website gapminder.org which has tonnes of information available.
Secondly, I have no doubt that an optimistic world view affects our investing approach. As evident from some of my other articles, I have a high risk tolerance. I think that is almost certainly strongly linked to my view that, overall, the world will be a better place in 5, 10, 20 and 50 years. And with that the biggest and best corporations will innovate and improve, becoming more efficient and profitable. And as shareholders, we will benefit.
But on the flip side, I can certainly see how a more moderate or pessimistic view would push an investor to be more cautious, less exposed to equities and more attracted to “safe haven” investments. I’m certainly not saying that I’m right, it’s just that my investing approach matches my outlook. And for someone else, their investments will likely line up with their guess on how the future might pan out.
As always, personal finance is ….. personal.
Finally, I’m sure that many will read this an think I just have a unrealistic, naive understanding of the world. And that’s OK, the world is interesting because we’re all different. But I do know that being an optimist helps keep me sane!
Many moons ago, I remember hearing this definition of an optimist:
A Yugo owner with a car alarm.
Thanks Carl. I had to look up what a Yugo is. I got the Wikipedia page “List of automobiles notable for negative reception”.
Today, taking my grandson to school, we got caught at a red light. My grandson expressed frustration. I laughed and made the observation: are we unlucky for missing the light, or possibly really lucky by being first in the queue when the light turns green? If nothing else, it made him think about framing and perspective..
I often think back to the book, Don’t Sweat the Small Stuff, and it’s all Small stuff. It’s hard to keep a healthy mindset.
Agreed Dan. I really do believe that you have to actively work at being an optimist, given the onslaught of challenging news.
I am also an optimist by temperament, perhaps not as strongly as you. I find that both national and world events are having a negative impact on my viewpoint. Thanks for this article, as it gives me food for thought.
Jeff, as I mentioned, I think actively working on remaining optimistic does help my mental health. I would certainly rather err on the side of being too optimistic and feeling good about the world than spiraling into pessimism and feeling terrible.
I am an optimist by temperament. Reading “Factfullness” by Hans Rosling reassured me that it was rational to have this outlook. And I would add “Not the End of the World” by Hannah Ritchie, a scientist influenced by Rosling, is a must-read for anyone who suspects headlines may give a very misleading or distorted view of any number of topics.
Thanks Jack. Just bought Hannah Ritchie’s book. I have read some of her other writing as well.
Greg, this reminds me of the parable of the two stonemasons – When asked what they’re doing, one says “breaking rocks in the hot sun.” The other says “building a cathedral.” Same reality, different timeframes and perspectives. Your 20-year P/E chart versus today’s headlines. Excellent article.