On the Money: Pessimists need to admit it’s getting better
‘I’ve got to admit it’s getting better, a little better all the time. Better, better, better,’ – Lennon & McCartney
Judging by a poll two years ago of over 18,000 adults under age 65 over twenty five of the world’s richest countries, a significant majority are pessimistic about their futures and think their countries are heading in the wrong direction. That was before Trump won the US Presidential election not to mention the current Brexit mess. Goodness knows what these will have done to the numbers. Shudder to think.
“Is your country going off on the wrong track” was one question. Worldwide, 61% thought so. In France, 89% were pessimistic. Same in Mexico. Not so bad in the UK though. Only 60% were gloomy. But that was two years ago.
When respondents were asked about the world in general as in “All things considered, do you think the world is getting better or worse or neither getting better or worse?”…. things definitely got worse. Only 1 in 16 adults in the US and 1 in 33 in France were optimistic. And in Germany? Only 1 in 25. Why the long faces? It turns out we’re pessimists by nature….even including experienced long term investors.
This month I was the main speaker at an Investment Conference in London, probably chosen because I’m an optimist, despite having survived 45 years in financial planning and having lived through at least five “ends of the world”, never mind more than a few recessions along the way. The other guest speaker, also who had been an investment practitioner for the best part of 30 years was surprisingly pessimistic. Mind you he’s been like this since 2016 (maybe since he read that survey), and has sat in Cash since. Ooops. Don’t tell him what he’s missed so far.
What makes me optimistic then? Well over the last couple of hundred years, billions of people have been lifted out of absolute poverty. No, not this relative nonsense we hear about in the UK, where if you can afford one foreign holiday a year, satellite TV and a couple of smartphones you’re close to the breadline. No, I’m talking about real improvements to health, education, longevity, and quality of life. So, historical evidence surely makes the case for optimism. Yet pessimism prevails. And it holds back millions of savers from making proper investment for retirement, thanks to irrational fear.
As Matt Ridley notes in The Rational Optimist….“In my adult lifetime I have listened to…. predictions of growing poverty, coming famines, expanding deserts, imminent plagues, oil exhaustion, mineral shortages, thinning ozone, acidifying rain, nuclear winters, mad-cow epidemics, Y2K computer bugs, killer bees, global warming, and even asteroid impacts…. I cannot recall a time when one or more of these scares was not solemnly espoused by sober, distinguished and serious elites….. The fashionable reason for pessimism changed but pessimism was constant.”
And Ridley asks: “why are human beings continually willing to believe in doomsday scenarios that virtually never materialise?”
One explanation offered by scientists is that our brains are designed first and foremost for survival. And new information enters our brains through the Amygdala which is on constant lookout for something to fear. It’s our panic button from thousands of years ago when if we didn’t spot danger we became lunch. So the genes passed down from the Savannahlands were from those who survived by running away when danger was sensed. Brave contrarians usually ended up as lunch.
We are wired to prioritise bad news. Sad, but true.
Harvard psychologist Steven Pinker reckons all this helps us to see the world as worse than it is. And television newsreaders know this too. As he says we “never see a reporter say to the camera, here we are live from a country where a war hasn’t broken out” Their focus is always on the negative.
Write down all the “bad stuff” that’s happened in the world since 1928. That’s 90 years. Now ask yourself why, despite all that bad stuff the US stock market has increased by an average of almost 10% per annum? Because it has. And has doubled long term returns every seven and a half years.
Think of everything that’s “gone wrong” in the UK since 1968. That’s 50 years. Now ask yourself why you missed out on the UK stock market’s 6.4% pa return after inflation? And that was real inflation by the way, not the wimps’ one many of us are told to worry about today.
Now that nuclear war worries are in the backburner, for the seventh year in a row worldwide recession’s around the corner. “Experts” claim that stock market “technicals” are forecasting recession. They’re the same ones that have forecasted 35 out of the last 10 recessions. But if it ain’t recession it will be debt “they” say. But in the world’s biggest economy where folks are even more pessimistic than we are, household debt relative to net worth hasn’t been this low since when Elvis came on the scene.
If I were you I’d view the forecasts of economic pessimists with suspicious minds.