The Dividend Cafe - Pessimism and Your Portfolio

Episode Date: November 20, 2020

I have to say there's nothing more important than the basic conversation of optimism vs. pessimism. Not only is the topic of extreme importance to me personally, existentially, emotionally, and spiritually, but I was convinced then, as I am now, that there is lasting investment significance to the topic – one that matters to the financial results of real people with real goals and real objectives. If you fast forward from the levels of uncertainty that existed in markets (and in the society) 6-8 months ago, some may conclude, “okay, well now I am an optimist, because we see a couple vaccines coming and a lower mortality rate than we feared then, but then we saw no such thing, and pessimism was in order.” And if pessimism vs. optimism is to be determined by circumstantial conditions at a moment in time, it is fair enough. If optimism is to be recovered as a hindsight tool for use after conditions have improved, I can understand that assessment (i.e. pessimism when one doesn’t know what is going on; optimism once they see things having gotten better). But of course, that is not what it means to be an optimist or a pessimist – to form a viewpoint or personality impulse (dare I say, a character impulse) as a backward looking response to then-known conditions. In today’s Dividend Cafe, we are going to unpack this more, and seek to understand why this topic is not just relevant to investors, but perhaps at the very heart of what it will mean to be a successful investor. I am optimistic that you will find it rewarding. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to this week's Dividend Cafe, podcast, video, all the good things coming to you with my thoughts on the week and kind of current reflections on the topic of the week. I wrote at dividendcafe.com this week about a subject that I actually made a video on earlier in the year. I was kind of quarantined up in my house as most of us were back in April. And one of the videos in a little mini series of kind of ad hoc videos we did in the COVID moment was on the subject of optimism versus pessimism. And I want to make a few comments on that topic here today. Not so much in the exact same vein as what that video was on,

what, seven or eight months ago, but kind of more evergreen approach to the topic, something that I happen to think is really, really important to the long-term investment success that a particular investor may have that comes out of their general disposition favoring a more optimistic viewpoint on things, a more pessimistic view. And one of the things that I will suggest to you is that an optimist does not mean – and the success that an optimist might achieve as an investor, let alone by the way as a human being, an investor, let alone, by the way, as a human being, does not mean the ability to look back on things that ended up turning out okay and saying, okay, well, now I'm an optimist.

In other words, optimism is not, by definition, a rearview mirror, a backward-looking condition or viewpoint or framework. Optimism, it requires a forward-looking expectation to be considered optimistic. If you're looking backward and saying, oh, yeah, look, that all worked out, that's merely descriptive. And yet what I would suggest is the the hang up for a lot of people who struggle with becoming optimistic is, in fact, the inability to look backwards on things that empirically suggest a reason to have an optimistic framework into the future and yet are unable to translate that.

They're unable to translate past experience into future expectation. There is something in the coping mechanism of pessimism and there is something soothing about a sort of pathological pessimism that people are unable to let go of. And it's important for me to say, as I wrote in Dividend Cafe, that when I describe myself as a generally optimistic person, imperfect, albeit generally so, I don't mean it as a compliment. Now, I do believe that there are a lot of merits to being optimistic, and I generally like optimistic people more than I like pessimistic people. But I'm saying this for a number of reasons. an optimist. But it is because there is a kind of lesson in my journey of optimism that I think is exactly the same journey and same kind of principle I'm trying to extract into the investment world. I don't feel that I have a choice but to be optimistic. And that is not because I've never

had bad things happen. It's because of bad things that have happened. And I mean a ton of them and I mean some really bad ones. Horrific things that have happened to me in my life that time and time and time and time and time again turned out okay. Sometimes turned out more than okay. And for somebody to experience the consistent and blessed occurrence of bad things turning into good and not being optimistic out of that sort of empirical lesson that being informed by the testimony of history, of reality, of experience, that has produced a kind of personal optimism. And that's the translation I'm going for into the investment world. It is simply impossible for me to comprehend somebody, a student of history, a student of markets, of economics, of the very principles of how capital works, how the profit motive works, works, of what the true relentless nature of capital's most rational use really is. That if someone truly understands those things, it does seem to me that optimism becomes the foregone conclusion. And yet when we say optimism, when we mean optimism, we do not mean that we believe the

next week is going to go well or the next month will be free of volatility or the next year will be free of conflict. Rather, it means that there will be challenges and uncertainties and volatilities and conflicts and the optimism becomes relevant in how we see the other side of those things, which is them not only working out but actually working out to our favor. This is not merely my request for people to have a bit more cheerful disposition about volatility or for people to generally have a little less doom and gloom outlook on life. It is more because I believe it has become expensive to be a pessimist. I think it has cost people too much money. And the time for pessimism to be a foundation of an economic or an investment worldview, it's time for it to come to an end. I do want to point out that people might say, well, look at the financial crisis, you little optimistic Pollyanna.

Look at the COVID moment in March. Look at 9-11. Look at some of the great recessions that we've experienced. And I guess I would point out the kind of obvious response to those things. The financial crisis, by the way, was the doozy of them all. It was an unbearably painful experience. I've talked about it, written about it at great length. It was an existentially profound moment in my life and career. But it also was 18 months long. All my clients have a far greater than 18-month timeline. If we're really being honest, it was about a six-month long experience of the real peak kind of dread and what was happening in the stock market. But if you want to look at the point at which the high of the market had been achieved and then the low of the market from that kind of peak to trough, it lasted 18 months. It's a pretty long time.

But not in the grand scheme of things of a multi-decade adult life filled with financial accumulation and filled with financial withdrawal and experience. and the COVID moment, which I've, I don't know, written and spoken about hundreds of times, saying how quickly, how surprised we are at the quickness and rapidity of the rebound, yet it bears repeating 36% in 31 days and then the biggest 50-day recovery we'd seen. and then the biggest 50-day recovery we'd seen. I understand that not all these things that go well so quickly necessarily had to go so well and had to turn out so quickly, but they did, and they've done it over and over and over again. At some point, we have to accept that our inability to kind of transition how we view these things and how we respond to them and how we think about them, how we feel about them,

has more to do with a sociological framework and a chosen emotional comfort zone versus a really rational and thoughtful viewpoint and perspective. So my wish for our clients listening, for investors at large listening, and really, if I'm being honest, those that are willing to apply this outside of just the mere financial and investment applications. realities of challenge and difficulty and distress through an optimistic framework because that optimism is birthed in experience and history. And that's the way I'm blessed to be wired, and I hope you all can kind of learn from this, benefit from it. Even if you disagree with it, at least think about it a little. And then, of course, feel free to bounce any questions or thoughts you have off me.

I'll interact with this as much as you'd like. I'm going to leave it there for this week. I'm running into another appointment, so we're a little short on the podcast today. Read DividendCafe.com. Get ready to have a wonderful weekend. Get ready to have a big Thanksgiving celebration with your friends and family next week. And thank you for listening to the Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. Thank you. of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein.

The data and information are provided as of the date referenced. Such data and information are subject to change without notice. to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions. Thank you.