Optimism as a Default Setting
-
Audio Recording by George Hahn
Josh Brown is one of Prof G Markets’ favorite guests. He’s funny, fearless, and genuinely insightful about the markets. Turns out, he’s also a great writer. We asked him to share the post below, making the case for optimism, as that is not our strong suit. I’m more of a “the glass is empty, we’re out of water, and it’s big tech’s fault” kind of guy. This post is adapted from his forthcoming book, You Weren’t Supposed to See That, coming out September 4.
Optimism as a Default Setting
by Josh Brown
At the turn of the 20th century, banker J.P. Morgan was the most powerful man on Wall Street, perhaps the most powerful man in the world. Finance in those days was still the Wild West, largely unregulated and prone to boom and bust cycles much more violent than anything we see today. On several occasions, Morgan personally orchestrated emergency measures to stop bank runs that might have otherwise taken down the financial system — typically increasing his own wealth in the process.
Shortly after one of those near misses, the Panic of 1907, an old friend of Morgan’s from Chicago came for a visit. The friend was, in the phrase of Mark Skousen, from whom I got this story, a “perma bear” — no matter what the market did, his outcome was always pessimistic. As usual, he and Morgan got to talking about the markets. And as usual, Morgan’s friend saw poor omens in every market indicator, while Morgan saw only buying opportunities. Eventually they headed out for lunch, and, walking up Broadway, Morgan’s friend was admiring the towering skyscrapers that were starting to define the Manhattan skyline. Impressed, he acknowledged they had nothing like them in Chicago. Eventually, Morgan stopped and turned to his friend. “Funny thing about these skyscrapers,” he said, “not a single one was built by a bear!”
Six years before that conversation, Morgan had completed his purchase of Andrew Carnegie’s entire steel operation for the unheard-of sum of $480 million, hundreds of billions in today’s dollars. You don’t do that deal and amass that kind of wealth with a persistently negative outlook. Count the perma bears on the Forbes 400 list or the number of pessimists who run companies in the Fortune 500. You will find none.
Winners and other men and women of foresight and ambition do monumental things; pessimists watch them from the sidelines, making a list of all the reasons things won’t work out. The losers do get to win sometimes, too. But their victories tend to be Pyrrhic, as every calamity ultimately leads to opportunity when the dust clears.
Bullish
In 2009, deep in the depths of the Great Financial Crisis, I saw Sam Zell speak to an audience of real estate investors and developers. He told us that “kings would be made” in that moment. He had nothing left to sell anyone, having blown out of his massive real estate holdings just three years earlier in a time of optimism. Old Sam had seen too many of these cycles; he knew that you always bet on positive outcomes, and you bet heavily when you’re alone on that side of the trade. It doesn’t always work, but it mostly does.
Pessimism is intellectually seductive, and the arguments always sound smarter, especially when they dovetail with our own worries. In the early years of the recovery from that crash, Sam’s advice (which Morgan would have echoed) was hard to follow. Even four years later, in 2013, when the stock market finally made it back over the 2007 high, optimism was scarce.
I remember distinctly how hesitant investors were to think positively about the future back then. On financial social media, saying things might work out OK was practically an invitation to be mercilessly ridiculed.
There were all sorts of reasons not to trust the recovery, and if you know anything about the media, then you know they had been relaying these reasons to us morning, noon, and night, repeatedly admonishing us lest we get too optimistic. Valuations were high, they said, while earnings would surely disappoint. Interest rates would rise. Various debt crises would ensue. Demographics were unfavorable. Obama’s healthcare plan surely meant the end of America. A looming government shutdown that fall would undoubtedly be the nail in the coffin.
And yet, somehow none of those things sank us. The year 2013 turned out to be the best for stocks since the halcyon days of the late 1990s. The Dow Jones Industrial Average finished the year up 26.5%, its best finish in 18 years. The S&P 500 had its best annual return in 16 years, capping out the year with an almost 30% return, ending December at a new record. The Nasdaq soared 38.2%, led by an emerging group of biotechnology and solar stocks that put on an extraordinary show for a new generation of growth stock enthusiasts.
According to S&P Dow Jones Indices, 457 of the S&P 500’s large cap stocks — roughly 90% of the index components — were up on the year. More than two-thirds of them had gains of 20% or more.
A new car company came out of the woodwork, too, and its relatively unknown CEO, Elon Musk, appeared on the cover of Fortune magazine as “Businessperson of the Year” in December. Tesla’s stock was up over 350% in 2013, kicking down the door to a new era while clearing the cobwebs of the aughts decade crisis away. Tesla’s rise and Musk’s wholly unorthodox approach to building his business represented the start of something entirely different from what we were accustomed to. This brought out as many haters and doubters as it did fans and acolytes. What was clear to both sides, however, was that something was changing.
Netflix had made its transformation from the company that mailed you physical DVDs to a streaming platform that changed the way we watched television and movies forever. Its stock rose 300% that year, becoming one of the hottest growth stories in the market. Best Buy mounted a notable comeback, too, notching a 240% return for investors who hadn’t given up on the company. BlackRock’s shares returned more than 50% as the stock market recovered, and the company surpassed all others in terms of assets under management, with the ETF giant breaking above $4 trillion.
For every negative you could have cited about the environment of 2013, there were plenty of reasons for optimism, as stocks reached new heights and smashed through a wall of skepticism. You just had to work a little harder to find them. This was true then, and it is true now. It will always be true. And despite all that we were worried about, and all of the unimaginable things that have befallen us since then, the stock market has been just fine. During the last 10 years, the S&P 500, assuming the reinvestment of dividends, has returned over 230%, or roughly 12% per year.
Bear Hunting
Today we are once again contending with all sorts of threats to our future well-being. Earnings expectations, we are told, must ultimately revert lower once companies run out of price hikes they can put forth, while the cost of employing people and running a business will surely increase. Profits are too high and must come down.
There’s the 2024 presidential election to be fearful about, too. As of this writing, the contest features “an unhinged insurrectionist criminal-tyrant who wants to wipe his ass with the Constitution” and a vice president who’s been thrust into the role after her party chased the “bumbling old man” out, after spending the last 18 months telling us he was perfectly healthy and up to the job. Surely a nation of 350 million people could do better. Somebody has to win, despite the fact that millions of people wish their choices were someone — anyone — else. So we’ll vote and live with the consequences. A few people on the winning side will be elated. Most of us will simply be relieved that it’s over — or possibly terrified by the prospect of what comes next.
There is more. We’re surely on the precipice of World War III, with China, Iran, and Russia allying themselves against Ukraine, Israel, and the rest of the free world, which the United States represents (and supports, both financially and militarily). We’ve got thousands of gaslit students (and their mendacious professors) openly supporting terrorism, kidnapping, mutilation, rape, and murder on college campuses across America. TikTok’s China-controlled algorithms gleefully pump the most divisive content they can surface directly into the national bloodstream.
Higher interest rates have put the housing market into a deep freeze. You can’t buy, and you most certainly can’t sell, risking a 100% increase in your mortgage rate. The national debt is ballooning by trillions of dollars, and the cost of servicing it all threatens to become our budget’s single biggest annual line item, supplanting Social Security and defense spending. Gas prices are high, rents are even higher, food prices are outrageous, hotel rooms and flights are egregious, and, even though nearly everyone has gotten a wage hike in recent years, the cost of living still seems to have outpaced it.
Talk to the average person on the street, and there’s almost nothing good worth saying. The polls are nearly unanimously negative.
“It’s bad and likely to get worse.”
What is bad? What is likely to get worse?
“I don’t know. It. Everything.”
OK, nice talking to you.
My point is that it’s easy to make lists of problems. Of everything that could go wrong or get worse. I could do it with my eyes closed, and so could you.
It’s much harder to have the imagination and the courage to talk openly about what might go right. What might improve. What unexpected thing could have a remarkable impact on how we work and live and change things for the better. Paradoxically, these types of improvements come along all the time. Given the long-term trend toward progress and convenience and lengthening lifespans, we ought to be more comfortable discussing the positives than we are.
But the bad stuff lands like a thud, generating headlines and invoking worst-case scenarios that drown out the sound of anything else. The good stuff creeps up on us, occurring slowly and quietly in the background as we gradually (and unobservantly) grow acclimated to it without even realizing. It’s rare for us to feel it or remark upon it in real time. The media has no vested interest in reminding us of it.
But the optimists are eventually proven right. Not every day, but always and eventually. Indisputably. It just takes a while to be able to see it play out. Even if you don’t believe me, make your investment in the future anyway, just in case I end up being right again. Plant your seed regardless. If you end up being right in your pessimism many years from now, we will all have bigger problems than what our investments are worth. Being optimistic all the time is difficult. But having any other disposition as a default setting makes little sense when you’re investing for a future far out in front of us.
P.S. NYU colleague Professor Aswath Damodaran joined me and my co-host Ed Elson on the Prof G Markets podcast this week to discuss the corporate life cycle. Listen on Apple or Spotify
P.P.S. Section’s hosting a fireside chat next Wednesday with my colleague at Stern, Conor Grennan, to talk about Deploying AI in the Enterprise. Join for free.
I actually can’t get my head around people thinking that college protestors are “supporting terrorism, kidnapping, mutilation, rape, and murder” as opposed to protesting the impact on innocent children, women, and men stuck Gaza.
A few months ago Scott said these marches around the world are “supporting Hamas”. Who the fuck is “supporting Hamas”? Boss level tone deaf.
I agree so much. I came to the comments only to be sure I was not the only one who was in shock with that part of the reading… so dissapointing.
Came here to say this. Talk about gaslighting. Isn’t this the country of “free speech”? These are young people trying to figure out who and what they are and what they believe in. I’m guessing that many of the Vietnam protesters have evolved into MAGA supporters or have certainly become significantly more conservative in their opinion. What they believed in them has changed. Personally, I’m of the opinion that every war since WWII has been to the significant detriment of this country, but that’s another story.
Anyway, as much as I appreciate Prof G and his insights, he’s got this one wrong. I have no idea who Josh Brown is but I think he’s wrong too. I think that vehemently pushing their own opinions on such a controversial subject amounts to gaslighting, the very thing that they’re trying to point out in these young people whose opinions could change by Monday.
Thank you. The entirety of this post was overshadowed by that sentence. Professor Galloway/Josh Brown, I implore you both to take a deeper dive into the history of Palestine.
Undoubtedly Josh Brown wants to bring more capital in to the markets…he runs a wealth management firm. More AUM = more fees. I wonder whose incentive it is to make investors more optimistic. This is just a WSB post in coherent form.
Secondly you can’t just shite on Palestine and its supporters like that. That description sounds more appropriate for Israel with every passing day. You shouldn’t be able to comment on this conflict without even understanding on how Israel came to be in the first place. Just watch the Vox videos on this on youtube.
You really should not use Vox as a source for factual balanced review of Israeli and/or Palestinian history, deeds, or future. Both parties have legitimate historical claims, both have corrupt fascist elements embedded in their politics, and liberal democratic constituencies, eduction and practices are not equally prevalent for many reasons. Vox seems to present (and possibly has) limited nuanced non-western current perspectives and/or knowledge. Progressive views that miss on what the Palestinian Authority and Hamas do to their own people, and what Palestinians have expressed in numerous surveys, or what Iran and its proxies declare publicly, might leave you with youtube level understanding and lack of optimism…
Wow. “Why can’t you just be happy and see how amazaballs everything is” as written by, presented by and read by obscenely rich white men.
This post was the most demoralizing and depressing thing I’ve read in a long time. If you haven’t listened to it let me summarize. Billionaires and their robber baron equivalents have always “won” because they got the most money. This was because of their positive attitude. Which is mich better than you negative “I just lost my home and life savings to venture capitalists who my government allowed to my hospital chain like it was a Mcdonalds franchise. So stop your whining (you know who you are), you negative nellys and jump right back into a lifetime of debt and servitude.
Anyway in case you boys can’t see from way up there the Earth is burning up from your fucking private jets and lack of balls to actually stand up to big energy and big government working in cahoots and the whole planet is suffering right now from YOUR lack of courage big guy. Well that shitpost pretty much took any enthusiasm we gathered by removing Biden away for the rest of this Sunday. Honestly, the most oblivious, privileged post I have seen in a long time. And since it’s a comment section I’ll just leave it at that because we wouldn’t want a bunch of facts to get in the way.
Lot of typos, sorry. Working outside while I thought I’d have an enjoyable listen.
Good read. But where’s the mention of “Demographics”? Missing.
China, for just one, is going to have a massive reduction in its population courtesy its past 1-child policy. And The West is reaping the benefits of contraception in the 60’s and the burden of Private Debt today – both dropping our replacement rates below sustainable. And that’s’ why Demographics will be important. The War has stared alright, and hundreds of millions of us will be missing when it’s over. But it isn’t a hostile War – it’s a Demographic one (Who do you sell anything you own today to, if there is no one there to buy it in the future?)
Too straight forward and black and white, but interesting to consider, thanks
The financial media is caught up in the “if it bleeds, it leads” cycle. I don’t even bother with CNBC anymore. “Fisher Investments’ Market Insights” gets a lot of my attention. And I always look forward to “No Mercy / No Malice”!
The long arc of progress is exactly that—safer environments, better educated citizenry—medical breakthroughs. It helps to keep that perspective when folks complain about technology or wokeness or whatever. I compare our living conditions to 13th century plague-ridden London and I think we’re doing okay! In the short term bad things and problems will always happen but history tells a different story.
Did you actually read what you wrote? Maybe it’s sarcasm and I missed it? We’re essentially “living in the 13th century” but things will be great….eventually! Do you know how bad things were in the 13th century? By any standard? UNLESS YOU WERE RICH. 🤦🏻♂️
Dear Scott
As you rightly say the “Optimism “will continue to win as we all are puppets in the hands of few global big players who actually decide what should happen in the world of economics. The broad game is actually very simple Both groups in this global game are partners with profit motive. One wants to make money by selling profitable equipments of defense materials Other wants sell it’s products of cheap large scale products .They naturally help each other to create each other’s demand So they will never situation to go out of their control and keep on flying their huge funds sucking cyclical gains they only mastered by their actions .
Nandkishor
Be optimistic. Once Russia destroys Ukraine completely, someone has to rebuild it. Invest in those companies. You’ll be rich, people get new homes, everything is fine, right? Only a bear sees the negative side of a destroyed country.
Those New York skyscrapers are indeed interesting, inspired by the first skyscraper, which was built in Chicago.
When the financial history is written about the national debt, the coin-operated Congress won’t look good. They were too busy fighting culture wars and trading stocks with inside information gleaned from closed-door Congressional Committee Meetings to take the opportunity to refinance the federal debt at historically low — real rate 0%. Don’t think that was a legitimate opportunity for debt? AAPL, swiftly followed by ANZN, MSFT, and GOOG tranched corporate bonds paying 1%-2%. And these were corporations that weren’t in debt. In fact, they had billions in cash on their books. Members of the coin-operated Congress were, as usual, focused on financing their next political campaigns, not on refinancing the federal debt. So, now the refrain is the cost of serving the debt at today’s higher rates. Pathetic.
The markets of all stripes have always bounced back from calamities and always will if they are free with proper regulation. There are so many fools out there now with way too much money at their disposal which is creating even more opportunity for many savvy investors. The global market is so dynamic and unpredictable how can one be negative.
Long live the BULLS
The sun always comes up. Rain doesn’t always fall.
Josh Brown has for years been my favorite financial commentator, mostly on CNBC. He is always inciteful and well worth my time listening. thank you Josh for the META call.
Great positive outlook. Sure, shit happens in all areas of life, but only the helpless throw up their hands and give up.
Excelent is a way of approaching life
I can’t put it better than Lorenzo and Dave already have, but I did want to comment to be counted as another reader who bailed on the article and found the false characterization of the protests to be extremely upsetting.
Josh Brown is brilliant, obviously. But there are a lot of brillant people. His gift is that he has a unique way of expressing his ideas in a way that everyone can understand and relate to.
*“My point is that it’s easy to make lists of problems.” *
IS it easy, though? this (very partial) list will actually be rather tough to compose. (Strikes me that what you call “optimism“ represents *infinitely* less effort.) But here goes:
So, WHAT will get worse?
* The consolidation of power, be it in the form of combined capital or control of hegemonic technologies, in the hands of an increasingly smaller and smaller group of people. (Wealth disparity is not *decreasing* worldwide. Alphabet/meta/apple are not sitting ducks for a “better mousetrap” from some scrappy Horatio Algers.)
* The lengths to which seekers of profit (who have the power to do so ) will go to lower labor costs.
* The external costs of the tech now stitched into the deepest parts of human life…from the ghastly/generational costs the “phone-based childhood,” to a supply chain that needs only a few disabled satellites in order to wobble.
Tl;dr: oddly, the bottom line of yr “optimism vs pessimism“ narrative is clear: this is about FAITH. In the eternal consistency of human behavior (dizzying highs + lows)…VS “faith” in a (profitable, natch) techno-future that might make a few rich folks even more rich, regardless of externalities.
The problem is not the faith embodied by your optimism. It’s WHERE you have placed that faith. “Optimism“ does not = ordinary, naked, boring human rapaciousness.
Trump built Towers in Manhattan, and in numerous other countries.
🤔
Being optimistic all the time is indeed challenging, but when you’re investing in a future that stretches far ahead, maintaining an optimistic disposition is not just practical—it’s essential. Optimism isn’t about ignoring difficulties; it’s about expecting that good things will happen and believing that setbacks are temporary, not permanent. When you’re focused on long-term goals, a default setting of optimism helps you stay resilient, adaptable, and creative, making it easier to navigate uncertainties and keep moving toward your vision of a better future.
Moreover, optimism fuels the perseverance needed to push through challenges, enabling you to see opportunities where others might see obstacles. This mindset doesn’t just benefit you personally—it also inspires and energises those around you, creating a positive, productive environment conducive to achieving great things.
che misera marchetta
“It’s much harder to have the imagination and the courage to talk openly about what might go right.” Couldn’t agree more. Thanks for the shoutout to the perpetual optimists who struggle every day to see and create a more innovative outcome. As Peter Lynch said, ““Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
I have made some of my worst investments following his advice from CNBC- the last one being MTTR from the 20’s down to $4. IMO- no depth of research. Just another talking head. I do agree that investing requires optimism. Otherwise, caveat emptor following Josh B. Entertainment does not make you money.
you lost me at josh brown, but to your point, if josh brown can get a book every half-wit in the world should be optimistic.
Great post that cuts to a kind of spiritual reality that we often don’t see because we’re too consumed by details and as humans, we’re often fearful beings. I’m 70 and I can only say what I’ve seen with my own two eyes: optimists tend to have great outcomes in life.
Just because you have more casualties don’t mean you are right.
I am not bearish on the world or global markets. But I am quite bearish on the mid east situation. 76 years of modern warfare and thousands of years before that.
I’m with Lorenzo, I was shocked to find in this newsletter such a disgusting dismissal of Palestinian suffering and pro-Palestinian protest. Brown, and Galloway by association, don’t appear to know the history leading up to this war and they are dangerously discounting human rights and Palestinian rights with the comment Lorenzo referenced.
Scott, I really appreciate how you have energized a public dialogue on our society’s ongoing transfer of wealth. I appreciate how you’ve expressed an openness to changing your personal stances based on new information. Please check your understanding of this issue and the narrative your platform is amplifying around Israel and Palestine. The violence there needs to stop, and we in the States need to stop funding it.
Sigh… I wish people would stop making the Bill Maher/Sam Harris talking point about the Gaza protests. They’re not in support of ‘terrorism and rape’, they’re against the murder and displacement of an entire population and ceaseless bombing campaigns of a regional superpower against a defenceless and humiliated group of people. I could go on. This is akin to saying that protestors against the war in Iraq were supporters of Saddam Hussein and authoritarianism. I like Scott but I wish he would think a bit more independently on this point.
Followed along until this: “We’ve got thousands of gaslit students (and their mendacious professors) openly supporting terrorism, kidnapping, mutilation, rape, and murder on college campuses across America”. Most paternalistic and hypocritical statement ever made
Love love the Josh Brown that wrote this, and the one that goes on the Prof G podcasts. Absolutely despise a lot of what the character that goes on CNBC says along with the rest of the crew who need to overanalyze 0.3% movements in a stock.