Why Are We All So Pessimistic?

We’ve written about this many times, but were particularly struck by an article published by Morgan Housel recently on the Motley Fool website. (For full article, click here.)

The start of Housel’s article captures our attitude in a nutshell as he quotes Deirdre McCloskey in a New York Times article: “ For reasons I have never understood, people like to hear that the world is going to hell.”

Housel observes that the root of the problem may be the fact that pessimism sounds smarter. It is “intellectually captivating” as opposed to the optimist, who is the “oblivious sucker.”

In fact, this is not a new trend. John Stuart Mill wrote more than a century ago, “I have observed that not the man who hopes when others despair, but the man who despairs when other hope, is admired by a large class or persons as a sage.”

Harvard professor, Teresa Amabile, has observed that in our current society book reviewers who publish negative opinions seem smarter and more competent than those giving positive reviews of the same book. “Only pessimism sounds profound. Optimism sounds superficial.”

Of course, our particular interest relates to investing, where it is clear that “a bull sounds like a reckless cheerleader, while a bear sounds like a sharp mind who has dug past the headlines…”

Housel concludes that there are five reasons he thinks pessimism sounds so much more compelling.

1. Optimism appears oblivious to risks, so by default pessimism looks more intelligent.
2. Pessimism shows that not everything is moving in the right direction, which helps you rationalize the personal shortcomings we all have.
3. Pessimism requires action, whereas optimism means staying the course. And we all believe that doing something must be better than doing nothing.
4. Optimism sounds like a sales pitch, while pessimism sounds like someone trying to help you.
5. Pessimists extrapolate present trends without accounting for how reliably markets adapt. Think of those who predicted we would run out of oil long before now….

The bottom line is that we all find bad news more compelling than good news. It colours the way we act and the things we believe in.  That’s not to say that there are no problems in the world. It’s just that we live in a world where the loudest voices are those declaring the glass is half empty.  As we’ve urged many times in the past, read Matt Ridley’s book, The Rational Optimist, to help you think a bit more clearly. It’s very likely that our children and grandchildren will have a better life than we do.