Welcome to the end of the week! Just sit back, relax, and enjoy this weeks roundup in another edition of Happy Hour.
Optimism Is Better
Marc Andreeson was interviewed by NY Mag this week. Several topics were discussed including optimism versus pessimism:
And I can tell you, at least from the last 20 years, if you bet on the side of the optimists, generally you’re right.
I agree, as long as we avoid the two extremes. Somewhere between the two sits reality. For now, lets focus on pessimism.
With everything going on in the world, there’s a lot to worry about – World War III, global warming, Ebola, market crashes, deflation, inflation, terrorism, economic stagnation, plane travel, unemployment, sharks, the list is endless.
It’s worse when you don’t understand the likelihood of something happening. Here’s a test for you:
We, and the media, over hype whichever is the most recent. Truth starts to mix with fiction. Weird stories spread. Then this happens:
Lady just chilling at Dulles in her homemade Hazmat suit pic.twitter.com/Ljlny8t4pr
— Joe Henchman (@jdhenchman) October 15, 2014
Here’s two quick points:
- We fear the wrong things.
- Pessimism must be exhausting.
How does this relate to investing? For one, the same two points apply. Second, you’re investment plan should have built-in protection.
Capital preservation is the core of a great allocation, as long as it doesn’t inhibit compounding power. A few extreme allocation examples would be cashing out to avoid market crashes, using savings accounts as long-term investments, or believing 3%Treasuries are the answer to your retirement woes. As Peter Lynch said:
Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.
Not investing is a great way to not lose money in the markets, but a terrible way to grow it. 1% savings accounts and 3% Treasuries offer pitiful compounded returns. And being pessimistic, and acting on it, is bad for your wealth.