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Pessimists sound smart. Optimists make money – Nat Friedman, former CEO of GitHub
Picture this: It’s early 2020, COVID-19 has the world in its grip, and you’re on a Zoom call discussing investments. Who grabs your attention more?
Is it the friend who confidently asserts, “Stay the course, the market will recover,” or the one who paints a grim picture of collapsing supply chains, stunted economic growth, and impending chaos, advising everyone to cut their losses and wait it out?
Chances are the second friend sounds more thoughtful and gifted superior skills and insights compared to the first friend comes across as a lazy and not in touch with ground realities and for sure does it sound exciting.
However, as this recent history has showed that if you had stayed invested and actually put in more money – you would have caught one the fastest rebounds in the market. Many others who pulled out money from the markets were never able to get in again the market.
We’ve survived wars, recessions, terrorist attacks, financial scams, and more. Yet, through it all, the markets have consistently grown. Pessimism might sound intelligent, but optimism, though often dismissed as naive, is what drives progress.
Matt Ridley in his book The Rational Optimist says – “If you say the world has been getting better you may get away with being called naïve and insensitive…If, on the other hand, you say catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Peace Prize.”
This bias isn’t limited to finance. It’s rooted in us, from daily chores to life-changing decisions. It’s our genetic predisposition. Our ancestors have survived by being cautious, but today, optimism fuels our progress. As Nobel laureate Daniel Kahneman points out, we’re wired to prioritize threats.
For example – we have talked about “Peak Oil” and other natural resource shortages following this pattern. Predictions are typically based on “proven reserves”. When there is shortage, the market forces kick in – either the “unproven reserves” become viable or other alternatives resources/ technologies are identified.
Being an optimist isn’t naive; it’s strategic. It’s understanding that true change often comes from unexpected breakthroughs, not just known areas. Anticipating that we, as a society, will continue to innovate, adapt, and triumph despite today’s headlines.
Yes, skepticism has its place. It can protect us and encourage due diligence. But if it paralyzes us into inaction when opportunities knock, what good does it do?
My two cents: Save like a pessimist but invest like an optimist.
Where do you stand? Are you always retreating at the first sign of danger, or are you the kind that trusts the resilience and innovation that have always driven us forward?
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