Which camp are you in?

Amar Pandit , CFA , CFP

One of the fundamental requirements to be successful as an investor is to have a positive view of the future. I call it Optimism. There is a general sense even among smart people that the world is going south. Nothing can be further from the truth as the world has indeed been making tremendous progress every decade and century. As Harvard University psychologist, Steven Pinker says “It’s essential to realize that progress does not mean that everything gets better for everyone, everywhere, all the time. That would be a miracle, that wouldn’t be progress.”

However, it is difficult to be optimistic for some investors because they consume a mind dumbing cocktail called “News” and with the proliferation of social media, everyone now doles out such cocktails (or mocktails).

Bad News = News.

Good News never makes it, and the nation does not even want to know. Pessimism sells and it seems like a close friend comforting you, but this is one of the biggest costs that investors pay unknowingly. Imagine the cost many people paid by being out of the stock market since February/March 2020.

Businesses run on optimism (and even in difficult times find ways to solve problems). Imagine Jamsetji Tata, who founded the Tata Group and Dhirubhai Ambani being pessimistic. Do you think they would have built such empires being pessimistic? Absolutely not. They were optimistic about a better future despite all the challenges they faced. Think of any successful business, creative project, and any world class person /team. The best face challenges but they overcome it. They are hopeful of a better future and thus Optimistic.

Investing is a Test of your Optimism. It is naïve (and foolish) to assume that the markets will not go down or that you will be able to time the markets. Your optimism will be tested at several points of time. However, you are going against the very premise of investing (that future is likely better) if you are pessimistic about the future. Thus, you bet against optimism and human ingenuity. This is the root cause of sub optimal investing experiences of many.

Optimism in a simple way means “Good will prevail”. Pessimism on the other hand means “Evil will prevail”.

Which camp are you in?