The end of the world is coming…soon – and let me explain why (keep reading). These types of prognostications have become more common in the financial media. And if this is the case, which it is, then one would then have to ask themselves, why? In my view, there are a few reasons; Pessimism (the extreme form, catastrophism) just sounds smarter, and our brains have been hardwired to fear the unknown.
Let me explain. If you turn on any source of media, there will never be a shortage of a “talking head” explaining in detail how their prediction will come to fruition. However, here’s the catch with most of those soothsayers – they very rarely give an exact timeline. Did you notice in my opening statement how I added the word “soon” in it? So, if some minutia of it does come true – at some point in the future (years, decades, or centuries) from now – they claim to have predicted it. In addition, the story which backs the untreated sewage of information can sound – well intellectually incisive. Not to pile on, but since we are here – those voices normally have many credentials following their name. I refer to them as lifetime students that can theorize just about anything, however in reality - where real people with real lives live - it just doesn’t seem to work the same way.
“…seduction of pessimism has been around forever and will always be around. I think in investing, a lot of it is that optimism sounds like a sales pitch and pessimism sounds like somebody's trying to help you.
-Morgan Housel – Author, The Psychology of Money
Secondly, our brains are hardwired for pessimism/fear. If we go back to the beginning – Neanderthal time – when man was scavenging on the Sahara and heard a rustling in the brush. They learned quickly that it was healthier to be pessimistic about whether it was a food source – or they would become the source of food (yes, a saber-toothed tiger in wait). In that context, it has served a purpose for survival, however we are no longer in that environment, but the brain doesn’t know this – so it reacts the same way to modern tigers.
However, pessimism just doesn’t square with history. As mentioned earlier, the stories attached to the newest crisis sound plausible – but our history (the facts) speaks to long-term human progress. Just to name a few below in the charts from Davis Advisors in the book, Factfulness – The Ten reasons We’re Wrong About the World and Why Things Are Better Than You Think, Author Hans Rosling.
The data is further evidenced by the book titled, Superabundance- The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet. – Authors Tupy & Pooley.
- 1950-2020: The population-weight average global income per person rose from $4,158 to 16,904 (307%)
- 1960-2017: The population-weight average life expectancy rose from 52.6 years to 72.4 years (37.6%)
- 1961-2017: The population-weighted average global food supply per person per day rose from 2,115 calories to 2,917 (38%)
- 1990-2016: The global homicide rate has dropped from 6.4 per 100,000 to 5.3 per 100,000 (-17%)
- 1970-2018: The population-weighted gross primary school enrollment rate in the world stood at 89% and is now at 100%
- 1981-2015: The rate of extreme poverty has plummeted, with the share of people living on $1.90 per day at 42% is now at less than 10%
Are. We. Done. Here.
There is one area we can prosper as pessimists – financial planning. More to the point – the savings component to planning. If you want your long-term plan to have a higher probability of success, save like a pessimist. However, your investing mindset should be focused on realism (my version of optimism), as the history of human progress has squared with it.
Disclosures:
The information is illustrative only and provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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