There was one underlying golden thread that ran through most of 2021’s customary start-of-the-year investment roadshows. There were no bold proclamations; rather, the word optimism softly appeared in almost all presentations given by the most respected industry analysts. Optimism about improving global economic conditions, the resurgence of global industries decimated by Covid, the continued price increases of commodities, and even the prospects of South African asset returns.
You may find this difficult to believe. A few weeks ago, the second wave of the pandemic had us in its grip and had suffocated our health sector and economy with the frightening spread of a second, new strain. Further, analysts had already warned of a third wave expected to blow in with wintry conditions. So where does this soft optimism come from?
Investment success is not ensured by looking back but by anticipating what will happen in the future. Financial market analysts are already factoring in a successfully vaccinated, Covid-free world, recovering strongly from a low base. Investment success, is in fact, ensured by such rational optimism. Provided there is advancement in economic development, productivity and innovation, we can be rationally optimistic that investment values will rise over time. Those who can see the world through this lens, are most likely to succeed in investments.
Sadly, the human brain is not designed to look for positive developments. Our senses are geared to inform our brains of danger lurking. This type of pessimism, often fuelled by our fight-or-flight response, is also much more newsworthy. Consider how, when people have become overly optimistic, a few prophets-of-doom will name a pending disaster and be spectacularly right. And we hear about it as it makes for news that sells. The hordes of optimistic investors who make successful long-term decisions don’t get much airtime. It’s hardly news to report about the ongoing success of optimistic investors.
It is not only investment success that is ensured by optimism, but also success in life. A Harvard Business Review article quotes research outlining patterns that show optimists receiving more promotions, being better at sales, being more likely to be more prepared for their financial futures and earning more than their pessimistic counterparts. Studies even show that optimists are healthier and live longer.
The success of optimists could be ascribed to their solutions-based approach as opposed to the pessimists’ problem-finding approach. Of course, there are dangers to being too optimistic and one should not just ignore problems or hope that they’ll disappear.
The belief that good things will happen, and that your actions can be effective are what define an optimist. It is these beliefs, that despite challenges you can improve your situation with action, that propel optimists forward.
We can all list a myriad of challenges because of the pandemic. And South Africa has many of its own, unique challenges. However, remaining pessimistic and focussing on the negative is very likely to rob you of a recovery in nearly every sphere of society all over the world. It’s happening. We read stories about it daily. Adjust your focus to see the positive signals and you are highly likely to reap rewards.
Ps. If you are interested in hearing why you should be rationally optimistic about investment prospects for South African and global portfolios, sign up for our annual Insight webinar on 9 March.
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//26 February 2021