In business, as in life, optimism rules. You don’t see a local or more widely known entrepreneur to be a pessimist; or why would they believe strongly in the possible, where it is easy to see the impossible?
With real estate prices high, people are calling it a bubble ready to burst. Some question new business development when there are places closing down or properties abandoned. Pessimists call themselves realists, and realists will eventually see their predictions come to pass. Yet when is the question, and how long. What we observe however, is that optimists tend to be the realists, and forward direction of prosperity is progressive. We don’t think much of the short-term, and this is especially true in our business of wealth management, specifically investing. Vision doesn’t have a one quarter, one year or even ten-year time horizon. It is a long view.
While it may be tempting to time the markets, and see asset prices as too high, those who succumb to pessimism and doubt most often tend to miss out on the longer and larger trend of progress. People rage about the end of this and that, but even at market tops, we observe that those with patience and optimism, and a long-term horizon, end up better than their more pessimistic peers. Even an investment at a market top results in positive performance over the long-term. An investment in all the stocks of the S&P 500 on an equal-weighted basis at the market top of 2007 would have more than doubled at the end of this February. A similar investment at the market top of 2000 equally in all the stocks of the S&P 500 would be worth nearly five times more at the end of this February (unadjusted for inflation).
Investors tend to blink and panic on short-term fear and miss out on good days. According to DALBAR, the average investor lost -9.42% over the course of 2018, even though the S&P 500 only lost -4.38%. In other words, the portfolio of pessimists lagged the returns of optimists who stayed the course.
By William Olinger III, CIMA and Ben Doty, CFA