I would describe my outlook on the market as long-term bullish, short-term anxious.
This might sound contradictory, but it’s not. I bet there are a lot of investors out there who feel strongly that stocks are going to be higher 20 years from now, and yet you wouldn’t know it by looking at their portfolio, or by their trading activity.
If long-term returns are all that matter, then why do we focus so much on today? Because the long-term is a series of short-terms. Because the risk of something going wrong outweighs the benefits of everything going right. This is why there are chief risk officers and no chief reward officers. The upside takes care of itself, if you let it. The downside can put you out of business in one afternoon.
I was motivated to write about pessimism versus optimism after listening to Patrick O’Shaughnessy interview Rory Sutherland, who said:
If you want to get a rational bastard going around killing beautiful ideas, it’s the easiest job in the world.
This spoke to me. The easiest thing in investing is to be pessimistic. It’s easy to say this idea will never work. It’s easy to say that this company has no moat. It’s easy to say that the stock market is overvalued.
Bears always sound smarter than bulls. The bear has a deeper understanding and is therefore more aware of the risks involved. The bull likes the idea but is naive to the competition, the macro environment, etc
In the court of law the prosecution bears the burden of proof and must remove any reasonable doubt. Innocent until proven guilty.
In the court of investing, the bulls bear the burden of proof.
How long have investors doubted Amazon? How long have investors doubted this bull market? There’s always the risk that something can go wrong, which is why it’s impossible to be bullish beyond a reasonable doubt.
You should not invest as if anything is guaranteed, including higher stock prices. But if you’re consumed by negativity and always worried about what could go wrong, you’re going to have a really hard time growing your portfolio.
Don’t think about this as pessimism versus optimism. Nobody is all of one and none of the other. Think about this as striking the right balance between these competing mindsets.
The easiest thing in investing is to be full of doubt, but nobody ever made any money by doing what was easy.