Saturday, May 18th, 2024

Why does pessimism sound so smart?

I came across this terrific article that talks about several reasons why the press, politicians and most everyone else tends to treat optimists like reckless cheerleaders and pessimists as intellectually captivating.  In Matt Ridley’s book “The Rational Optimist” he wrote:

If you say the world has been getting better you may get away with being called naïve and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. If, on the other hand, you say catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Peace Prize.

The article points out that

  • The difference between an optimist and a pessimist often comes down to endurance and time frame.
  • Misery loves company.
  • Pessimism is “SELL, GET OUT, RUN,” which grabs your attention because it’s an action you need to take right now.
  • Optimism sounds like a sales pitch.
  • Pessimists extrapolate present trends without accounting for how reliably markets adapt

The article refers to Professor Jeremy Siegel, who is often referred to as a “perma-bull” meaning he always sees good things ahead. My clients will recognize Professor Siegel as the author of “Stocks For The Long Run” and in particular of a 200+ year chart of the performance of investment asset classes. I use this chart as an education tool to demonstrate how stocks/businesses/companies adapt to changing circumstances and find new ways to improve service to customers, leading to a steady (over the long run) increase in the value of their shares. New clients often ask me how this can continue and think I am being overly optimistic.  I point out that in this case what seems like optimism is in fact realism, and I am all in favour of realism.

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