Why Pessimism Sounds Profound
and why optimism sounds lazy.
"I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.” - John Stuart Mill
Imagine that you’re sitting in Starbucks sipping your favorite coffee and you have your Financial Planner across the table, having an animated conversation with you about long-term investing. This is happening during the pandemic, in March 2020, while fear has gripped the whole world. He could make one of the 2 statements below -
“Things will get better, so keep investing”
“COVID has been declared a pandemic and this could stunt economic growth across countries, shutting borders, and crippling supply chains, all of which could lead to chaos. The most sensible thing would be to cut risk from your portfolio, sell everything, and wait on the sidelines till things normalize. If I were you, I’d make this move with my money”
Which one sounds intellectually right?
If you are like me, then odds are high that you would find the second statement intellectually right, projecting the messenger as a brilliant financial planner, gifted with skills and insights that could come to your rescue like Superman does for residents of Metropolis.
And just maybe, the messenger making the first statement may come across as a lazy optimist, not in touch with ground realities, and hence to be avoided at all costs.
If that hypothetical version of ourselves had chosen action stemming from pessimism, then the gods would have played a very cruel joke on both of us, depriving us of the fortune that was to follow post-March 2020.
The markets went up 42% from 31st Mar ‘20 to 31st Dec ‘20, and it has gone up 65% from then till 29th Sep ‘23. I am referring to S&P500 and hence the numbers look decent. But many other indices, countries, or companies have appreciated much more in value, as shown below -
Historically, markets have witnessed umpteen events such as wars, recessions, riots, WTC bombing, housing crashes, European debt crisis, and in spite of all this chaos, markets still went up 250x from 1950 to 2023. And all of these smart-sounding reasons would have nudged or even forced you out of the markets because that seemed a wiser bet.
What seems wise, may have been a very unprofitable bet to make. Staying invested or continuous accumulation of an Index can lead to multiples of your money, as shown below. This is life-changing in so many ways but it doesn’t sound smart, nor does it sound exciting. Add to this the churn in your stomach that stock market movements bring about. No wonder most investors keep jumping in and out of markets, never reaping the gains available to them only if they believed in human ingenuity to find solutions to problems and stayed put for the markets to recover.
Matt Ridley wrote in his book The Rational Optimist - “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.”
This tendency isn’t limited to investing. It affects us all in all our affairs, whether as mundane as grocery shopping to as important as voting for our governments or running our businesses. Let’s look at a few snippets from scholarly articles on the subject of pessimism -
In an article titled “On Wildebeests and Humans: The Preferential Detection of Negative Stimuli” in the journal Psychological Science, researchers showed that subjects remembered negative words faster and more often than positive ones.
Harvard professor Teresa Amabile shows that those publishing negative book reviews are seen as smarter and more competent than those giving positive reviews of the same book. "Only pessimism sounds profound. Optimism sounds superficial," she wrote.
An economist named Thomas Malthus proposed a theory in the 18th century stating that human population is limited by the availability of resources, such as food and land and he argued that population tends to grow exponentially, while resources only increase arithmetically. As a result, he held strong opinions and predicted that population growth would far exceed the capacity of resources to sustain it, leading to famine, poverty, and other forms of catastrophe. This Malthusian trap is debated in economic circles even today, in spite of the tremendous gains in technology and agricultural productivity over the years.
Let’s look at an example from my holiday bookings for South East Asia itself. I was planning my family’s trip to Vietnam this morning and was checking reviews for a specific hotel on TripAdvisor and I must admit one thing - the negative reviews had a stronger impact on me whereas the positive ones made me doubt if these were advertisements in the garb of reviews.
Disrestful !!!
Worst Experience !!
I don’t want this experience for my family for sure but is this online feedback real or planted by competitors? I will know the truth only after I reach Hanoi, Vietnam on 9th October. Till then, the negative thoughts about this booking might just linger in my mind and make me anxious enough to just, maybe, cancel this booking and book something else.
The more I think about these pessimistic feelings, the more I realize that their hold on us may just be genetic in nature. Imagine our ancestors centuries back, hunting for food only with spears and with a commitment to get food for their families. The optimistic ones ventured out into the wild without fear and may have become a meal to the predators. The pessimistic ones may have trodden carefully and made a move only when they were certain of survival. Hence, they survived, leaving their genes in us all, making us transfixed on negative stimuli, and finding the positive stimuli as mundane or something to be doubtful about.
Even the Nobel Peace Prize winner Daniel Kahnemann has stated "Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce".
Few more reasons that might make pessimism sound profound (inspired by Morgan Housel’s writings on this subject) -
Bend in the Road -
An optimist might sound like the world is perfect and everything is possible, which is unacceptable for many since they have first-hand experiences of their struggles with the inefficiencies in our societies and workplaces. An optimist might look at adversity as a bend in the road and not the end of the road. But a pessimist sees it as a dead end and hence gives in to the emotions induced by loss and failure.
E.g. I was having a debate with a friend of mine over Indian politics and he was very frustrated with the corruption that has seeped into the system. He was convinced that every politician is corrupt or forced to be corrupt just to survive. But I couldn’t accept the “every” or “all” part of this statement as I have read enough stories and heard enough first-hand accounts of people who play the game with integrity and are pulled by a grand vision for their respective companies, societies, or countries.
Personal Shortcomings
Pessimism provides enough rationalization to feel like a victim and not fight against the system which is laced with inefficiencies and unfair outcomes. An optimist sees the glass half full as he is convinced that if there is even a 1% chance, he is willing to take it. Whereas a pessimist may not even try as the odds are stacked against him. Hence the pessimist sounds attractive to your monkey mind who has a long way to go to evolve into a bull that doesn’t cease to amaze the world with its power to move mountains.
As Morgan Housel says “Realizing that things outside your control could be the cause of your own problems is a comforting feeling, so we're attracted to it.”
Unnecessary Action & Emotions
An optimist need not think too much about what’s not in his control. He might be happy to just do his job well and continue doing it irrespective of the chaos around. Warren Buffet symbolizes this behavior more than any living person I am aware of. Stoic philosophers have preached this message for centuries through their talks on mindfulness.
Whereas a pessimist is moved into unnecessary action and too many emotions as he feels he will lose, or miss out, or be left behind. Hence he follows every news or stimulus dished out to him with some reaction some judgement, or some outburst.
It’s exactly for these reasons that I prefer to read a book every week and listen to podcasts on a regular basis, as the positivity in there fills me up with hope and enthusiasm about what life has to offer. It’s exactly for these reasons, I would try to do something difficult on a regular basis eg. workouts, cold water plunges, bungee jumps, or competitive exams. It’s these brushes with physical challenges and mentally complex hurdles, that one tends to build enough muscle to fight the gravity of negativity and pessimism.
It’s genetic, but that doesn’t mean we don’t stand up and fight for the life you and I want to create. Even if we fail, the fight itself will make the journey worth it. Add to that the memories every fight creates and the people it inspires along the way.
As Jim Carrey says “Either you're the one erasing or you're the one being erased”.
I invite you to erase this deep-rooted pessimism, bit by bit, day after day, time and again. We have to fight this inner battle, and we have to win this constant war between the optimist and the pessimist within us !!!
We Must !!!
Packing my bags now and off to the airport in an hour.
Wishing you all a fantastic weekend amigos🥂
Sending you loads of love and luck as always 🧿
Manish
Excellent piece. Can totally relate to how the negative has do much more power over the positive. Look forward to reading your piece every week to fuel the positive. Enjoy Vietnam!