Why does pessimism sound so smart?
01 April, 2016
An adaptation of a Motley Fool article written by Morgan Housel
"For reasons I have never understood, people like to hear that the world is going to hell" historian Deidre McCloskey told the New York Times recently.
Despite the record of things getting better for most people most of the time, pessimism isn't just more common than optimism, it also sounds smarter. It's intellectually captivating and paid more attention to than the optimist who is often viewed as an oblivious "sucker".
Pessimism overshadowing optimism is not necessarily a recent phenomenon. John Stuart Mills wrote 150 years ago "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."
In investing, some of the reasons pessimism sounds so smart are:
Optimism appears oblivious to risks so pessimism looks more intelligent. While optimists might acknowledge that we'll have recessions, bear markets, wars and panics they are prepared to endure these downsides. A pessimist sees a bad event as the end of the story. The difference between an optimist and a pessimist comes down to endurance and time frame.
Pessimism is based on not everything moving in the right direction, which is comforting to us. Misery loves company. We are attracted to the idea that things outside our control could be the cause of our own problems.
Pessimism requires action, whereas optimism means staying the course. Pessimism forces us to take action — sell, get out, run — which feels better than just sitting and hoping.
Optimism can sound like a sales pitch, while pessimism sounds like someone trying to help you. Actually, pessimism can be as big a sales pitch as anything — how many "buy gold" advertisements have you seen during times that seem highly uncertain?
So should you ever listen to pessimists? Of course. They're the best indication of what's about to change!