The Prof G Pod with Scott Galloway - No Mercy / No Malice: Optimism as a Default Setting
Episode Date: August 24, 2024As read by George Hahn. https://www.profgalloway.com/optimism-as-a-default-setting/ Learn more about your ad choices. Visit podcastchoices.com/adchoices...
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I'm Scott Galloway, and this is No Mercy, No Malice. Josh Brown, the CNBC commentator and
hedge fund manager, has become one of our favorite people. We asked him to do a guest post. This is
adapted from his forthcoming book, You Weren't Supposed to See That, coming out September 4th,
Optimism as a Default Setting, as read by George Hahn.
At the turn of the 20th century,
banker J.P. Morgan was the most powerful man on Wall Street,
perhaps the most powerful man in the world.
Finance in those days was still the Wild West,
largely unregulated and prone to boom and bust cycles much more violent than anything we see today.
On several occasions, Morgan personally orchestrated emergency measures
to stop bank runs that might have otherwise taken down the financial system,
typically increasing his own wealth in the process.
Shortly after one of those near-misses, the Panic of 1907,
an old friend of Morgan's from Chicago came for a visit.
The friend was, in the phrase of Mark Skousen, from whom I got this story, a perma-bear.
No matter what the market did, his outcome was always pessimistic.
As usual, he and Morgan got to talking about the markets, and, as usual, Morgan's friend saw poor omens in every market indicator, while Morgan saw only buying opportunities.
Eventually, they headed out for lunch, and walking up Broadway, Morgan's friend was admiring the towering skyscrapers that were starting to define the Manhattan skyline.
Impressed, he acknowledged they had nothing like them in Chicago.
Eventually, Morgan stopped, turned to his friend.
Funny thing about these skyscrapers, he said, not a single one was built by a bear. Six years before that conversation, Morgan had completed his purchase
of Andrew Carnegie's entire steel operation for the unheard of sum of $480 million,
hundreds of billions in today's dollars. You don't do that deal and amass that kind of wealth with a persistently negative outlook.
Count the perma-bears on the Forbes 400 list or the amount of pessimists who run companies in the Fortune 500.
You will find none.
Winners and men and women of foresight and ambition do monumental things. Pessimists watch them from
the sidelines making a list of all the reasons things won't work out. The losers do get to win
sometimes too, but their victories tend to be pyrrhic, as every calamity ultimately leads to opportunity when the dust clears. In 2009, deep in the depths of the
great financial crisis, I saw Sam Zell speak to an audience of real estate investors and developers.
He told us that kings will be made in that moment. He had nothing left to sell anyone,
having blown out of his massive real
estate holdings just three years earlier in a time of optimism. Old Sam had seen too many of
these cycles. He knew that you always bet on positive outcomes, and you bet heavily when
you're alone on that side of the trade. It doesn't always work, but it mostly does.
Pessimism is intellectually seductive,
and the arguments always sound smarter,
especially when they dovetail with our own worries.
In the early years of the recovery from that crash,
Sam's advice, which Morgan would have echoed,
was hard to follow.
Even four years later, in 2013, when the
stock market finally made it back over the 2007 high, optimism was scarce. I remember distinctly
how hesitant investors were to think positively about the future back then. On financial social media, saying things might work out okay
was practically an invitation to be mercilessly ridiculed.
There were all sorts of reasons not to trust the recovery,
and if you know anything about the media,
then you know they had been relaying these reasons to us morning, noon, and night,
repeatedly admonishing us lest we get too
optimistic. Valuations were high, they said, while earnings would surely disappoint.
Interest rates would rise. Various debt crises would ensue. Demographics were unfavorable.
Obama's health care plan surely meant the end of America. A looming
government shutdown that fall would surely be the nail in the coffin. And yet, somehow none of those
things would sink us. 2013 turned out to have been the best year for stocks since the halcyon days of the late 1990s. The Dow Jones Industrial Average
finished the year up 26.5%, its best finish in 18 years. The S&P 500 had its best annual return
in 16 years, capping out the year with an almost 30% return, ending December at a new record level. The Nasdaq soared 38.2%,
led by an emerging group of biotechnology and solar stocks that put on an extraordinary show
for a new generation of growth stock enthusiasts. According to S&P Dow Jones indices, 457 of the S&P 500's large-cap stock, roughly 90% of the index components, were up on the year.
More than two-thirds of them Business Person of the Year in December.
Tesla's stock was up over 350% in 2013, kicking down the door to a new era while clearing the cobwebs of the aughts decade crisis
away. Tesla's rise and Musk's wholly unorthodox approach to building his business represented the
start of something entirely different from what we were accustomed to. This brought out as many
haters and doubters as it did fans and acolytes.
What was clear to both sides, however, was that something was changing.
Netflix had made its transformation from the company that mailed you physical DVDs to a streaming platform that changed the way we watched television and movies forever. Its stock rose 300% that year,
becoming one of the hottest growth stories in the market.
Best Buy mounted a notable comeback that year,
notching a 240% return for investors
who hadn't given up on the company.
BlackRock shares returned more than 50%
as the stock market recovered and the company surpassed all others in terms of assets under management, with the ETF giant breaking
above $4 trillion. For every negative you could have cited about the environment of 2013 as stocks
reached new heights and smashed through a wall of
skepticism, there were plenty of reasons for optimism. You just had to work a little harder
to find them. This was true then, and it is true now. It will always be true. And despite all that
we were worried about, and all of the unimaginable things that
have befallen us since then, the stock market has been just fine. Over the last 10 years,
the S&P 500, assuming the reinvestment of dividends, has returned over 230%, or roughly 12% per year.
Today, we are once again contending with all sorts of other threats to our future well-being.
Earnings expectations, we are told, must ultimately revert lower
once companies run out of price hikes they can put forth,
while the cost of employing people and running a business will
surely increase. Profits are too high and must come down. There's the 2024 presidential election
to be fearful of, too. As of this writing, the contest features, quote, an unhinged insurrectionist
criminal tyrant who wants to wipe his ass with the Constitution, unquote,
and a vice president who's been thrust into the role after her party chased the bumbling old man
out after having spent the last 18 months telling us he was perfectly healthy and up to the job.
Surely, a nation of 350 million people could do better.
Somebody has to win,
despite the fact that millions of people wish their choices were someone,
anyone else.
So we'll vote and live with the consequences.
A few people on the winning side will be elated.
Most of us will simply be relieved that it's over or possibly terrified by the prospect of what comes next.
There is more.
We are surely on the precipice of World War III
with China, Iran, and Russia
allying themselves against Ukraine, Israel,
and the rest of the free world,
which the United States represents and supports both
financially and militarily. We've got thousands of gaslit students and their mendacious professors
openly supporting terrorism, kidnapping, mutilation, rape, and murder on college campuses
across America. TikTok's China-controlled algorithms
gleefully pump the most divisive content
they can surface directly into the national bloodstream.
Higher interest rates have put the housing market
into a deep freeze.
You can't buy and you most certainly can't sell,
risking a 100% increase in your mortgage rate.
The national debt is ballooning by trillions of dollars
as the cost of servicing it all threatens to become
our budget's single biggest annual line item,
potentially supplanting Social Security and defense spending.
Gas prices are high.
The rents are even higher. Food prices are outrageous.
Hotel rooms and flights are egregious. And despite the fact that nearly everyone has
gotten a wage hike in recent years, the cost of living still seems to have outpaced it.
Talk to the average person on the street and there's almost nothing good worth saying.
The polls are nearly unanimously negative.
It's bad and likely to get worse.
What is bad?
What is likely to get worse?
I don't know.
It.
Everything.
Okay.
Nice talking to you.
My point is that it's easy to make lists of the problems,
of everything that could go wrong or get worse.
I could do it with my eyes closed, and so could you.
It's much harder to have the imagination and the courage
to talk openly about what might go right,
what might improve, what unexpected
thing could have a remarkable impact on how we work and live and change things for the
better.
Paradoxically, these types of improvements come along all the time.
Given the long-term trend toward progress and convenience and lengthening lifespans, we
ought to be more comfortable discussing the positives than we are. But the bad stuff lands
like a thud, generating headlines and invoking worst-case scenarios that drown out the sound
of anything else. The good stuff creeps up on us, occurring slowly and quietly in the background as we gradually and unobservantly grow acclimated to it without even realizing.
It's rare for us to feel it or remark upon it in real time.
The media has no vested interest in reminding us of it.
But the optimists are eventually proven right.
Not every day, but always and eventually.
Indisputably.
It just takes a while to be able to see it play out.
Even if you don't believe me, make your investment in the future anyway,
just in case I end up being right again.
Plant your seed regardless.
If you end up being right in your pessimism many years from now,
we will all have bigger problems than what our investments are worth.
Being optimistic all the time is difficult.
But having any other disposition as a default setting
makes little sense when you're investing for a future
far out in front of us.
Life is so rich.