The famous South African Rand is always a hot topic. It is always going to weaken and it’s always the governments fault. The last 19 months have shown a dramatic decline in the Rand and as South Africans we bemoan the fact that we are alone in this cruel dark world. The graph below illustrates what has happened to the Australian Dollar, Russian Ruble and Brazilian Real over the last 19 months. You will see from this graph that the Australian Dollar has also taken a pounding and you would have been better off as a Russian than an Australian. You will also note that I have ignored the proper basket cases of Venezuela and Turkey.
The reverence of pessimism is not a new phenomenon, in 1840 John Mills the English philosopher and economist was quoted saying “I have observed that not the man that hopes when others despair, but the man that despairs when others hope, is admired by a large class of persons as a sage”. Why is it that people often see the pessimist as the intellectual who can look at a problem from all angles and the optimist as a person who acts like an ostrich ignoring all the realities of life.
I recently reread a 2016 article by Morgan Housel : https://www.fool.com/pwa/investing/general/2016/01/21/why-does-pessimism-sound-so-smart.aspx? (only opens in Chrome) which looks at why pessimism is more revered than optimism:
- Optimism appears oblivious to risk, so by default pessimism looks more intelligent. But that’s a wrong way to view optimists. Most optimists will tell you things will get ugly, that we’ll have recessions, bear markets, wars, panics, and pandemics. But they remain optimistic because they set themselves up in portfolio, career, and disposition to endure those downsides. To the pessimist a bad event is the end of the story. To the optimist it’s a slow chapter in an otherwise excellent book. The difference between an optimist and a pessimist often comes down to endurance and time frame.
- Pessimism shows that not everything is moving in the right direction, which helps you rationalize the personal shortcomings we all have. Misery loves company, as they say. Realizing that things outside your control could be the cause of your own problems is a comforting feeling, so we’re attracted to it.
- Pessimism requires action, whereas optimism means staying the course. Pessimism is “SELL, GET OUT, RUN,” which grabs your attention because its an action you need to take right now. You don’t want to read the article later or skim over the details, because you might get hurt. Optimism is mostly, “Don’t worry, stay the course, we’ll be alright,” which is easy to ignore since it doesn’t require doing anything.
- Optimism sounds like a sales pitch, while pessimism sounds like someone trying to help you. And that’s often the truth. But in general, most of the time, optimism is the correct default setting, and pessimism can be as big a sales pitch as anything – especially if it’s around emotional topics like money and politics.
- Pessimists extrapolate present trends without accounting for how reliably markets adapt. That’s important, because pessimistic views often start with a foundation of rational analysis, so the warning appears as reasonable as it is scary. In 2008, environmentalist Lester Brown wrote: “By 2030 China would need 98 million barrels of oil a day. The world is currently producing 85 million barrels a day and may never produce much more than that. There go the world’s oil reserves.” He’s right; We’ll run out of oil in that scenario. But that’s not how markets work. A shortage pushed up oil prices, high prices incentivized producers to come up with new drilling techniques, and now we have more oil than we know what to do with. World oil production last year was 96 million barrels — already way above what he thought was the high mark. Failing to account for markets’ ability to adapt is the cause of death of most pessimist forecasts. Should you ever listen to pessimists? Of course. They’re the best indication of what’s unsustainable, and thus probably about to change, and thus the soil of what’s to be optimistic about.
We are often our own worst enemies and our pessimism becomes a self-fulfilling prophecy, I am always fascinated by the fact that even in the worst situations and conditions, there are always some people who are thriving. When seeing this phenomenon, I am reminded of the very corny but true saying that “opportunity is the flipside of adversity”. So, when you are surrounded by the noise of panic and knee jerk reactions caused by very negative/pessimistic news, think hard and clear about the plan you have in place and whether action is really required.
CFP® CA (SA)