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Why do people invest? Why do we set aside money that we could be using today for any other purpose? What drives us to forego present benefit for some esoteric version of what the future might hold?

The answer is simple: To invest implies an eternal optimism. The investment game is for the person who has boundless hope for what is possible; the type of person who can close her eyes and envision a world even better and more fruitful than the reality she’s currently living in.

I’ve always loved the following quote from an obscure title by Salinger who is best known for his Catcher In The Rye:

“There are nice things in the world – and I mean nice things. We’re all such morons to get so sidetracked.”

– J.D. Salinger, Zooey

That investors are eternally optimistic is self-evident. If this was not the case, the investor would simply despair and withdraw their funds for use in the present-day. They would take an extra vacation and forsake what is yet to come for the certainty of an immediate benefit. The future is unclear, anyway, right? Carpe diem, the critics chime.

While the future is unknowable in the present, the intelligent investor is able to strike a workable balance between what is and what can reasonably be expected to come. Having experienced enough of the world and seen what happens to people who put the future off and don’t prepare for it, the investor decides to craft a meaningful world looking out even several decades.

No Matter Your Age

Investors of all ages hold this innate drive to create a future worth living in. For the young, the reason might be to sustain themselves on their passive dividend income and be able to devote their later years to the activities of their choosing. Whether that means spending more time with family or having more opportunities to get out and play tennis, young investors typically want to do more of what they love.

For an older investor who has done well for themselves, why not drain the bank account? There’s the age-old line of, “I want my last cheque to bounce,” that comes to mind. So, why not do it? The wise investor, advanced in their years, instead continues to invest carefully and with an eye to the future so they can leave a legacy behind. They believe that through their efforts they will be able to provide opportunity to the ones they love the most for years to come.

History has shown us that investors of all ages may be successful. A youthful entrepreneur of renown who has achieved great success in today’s world is Elon Musk. Musk has been serially creating companies that shape the way we live our lives and all signs point to this trend continuing.

Consider this quote which demonstrates Musk’s appetite for creating a better future:

“I think it’s very important to have a feedback loop, where you’re constantly thinking about what you’ve done and how you could be doing it better.”

This quote properly encompasses the notion that investing effectively requires optimism. A pessimist may see the fault in the world and in their own actions but does little to change it. The optimist, when recognizing a fault, is driven by finding ways to improve. In this way we can see that an optimist is solution driven while a pessimist is problem driven. Both look at the same set of facts and approach the topic in diametrically opposed fashion. Life comes down to how you see the world and whether you choose to relate positively or negatively.

All About Perspective

One good method for improving as an investor and as an optimist alike is to see the world as a huge LEGO playground. Every component in the world is just a piece of LEGO. While many take these interlocking bricks out of the box and use the instructions, the truly creative can take an assortment and simply create a world of their choosing.

Life similarly is made up all different shapes and sizes since as people we exist in a world of varied cultures, personalities, and opportunities. When we are at our best as people, we are improvising on the fly and finding answers to real-world situations. Investors find ways of recognizing challenges and framing them in terms of ways to capitalize. An optimist finds ways over, under, around, or through any obstacles.

A Real-World Example

In mid-2014, McDonald’s Corporation (MCD) and YUM! Brands, Inc. (YUM) reported that a common Chinese meat supplier had been providing them with expired meat. Both companies experienced considerable reputational harm from the incident and both of their share prices responded negatively. At the time, the media was in a feeding frenzy with negative headlines forecasting how much worse things were going to get before they got any better.

I decided to put on my “Optimistic Investor Glasses” and take a look at the situation for what it was; a (hopefully) short-term quality control issue which neither company could have been reasonably expected to foresee in advance of it happening. At the end of the day, I knew that both companies still owned quality real estate and as we have seen in the past with similar food quality scares, it is quite possible for a company to bounce back all the same.

I decided to purchase both companies in mid-to-late July and again later as their prices declined. My MCD stake is slightly positive while my YUM position has increased over 20%. While this may sound like good news, I actually was hoping to pick up shares of both companies on further declines. Whether I get that opportunity in the future or not, I am pleased to have initiated a stake in each firm at what I deem reasonable prices.

Conclusion

Succeeding as an investor often means going against-the-grain. Being able to stand tall in the midst of the buzz of media drones and popular sentiment allows us to capitalize on special situations as they arise.

My investment in MCD has thus far done okay while my YUM investment has responded with a strong advance. Rather than trying to cherry pick which company would come out of the scandal on better footing, I decided to invest in both as I had been eyeing them for years. Since my research had already been done ahead of time with these companies, I was able to simply pull the investment trigger with cash I had sitting on the sidelines already.

Remember to think optimistically about the world and the role you play in it.

Thank you.

Ryan

Are you an eternal optimist investor? Have you ever taken advantage of a short-term opportunity?

Full Disclosure: Long MCD, YUM

Pictures courtesy of pixabay.com

6 thoughts on “The Eternal Optimism of Investing

  1. Allan says:

    Hi Ryan,

    That an interesting angle. So I’m an optimist ahahah Some would laugh. I’ve always seen myself as a realist with a pessimistic tendancy. 🙂 But when I see something going wrong I’m very often one of the first one seeking for solutions to improve things out. In fact I love chaos because there’s always something to improve and I feel alive in such situations. Actually I see myself more like a problem solver than an optimist.

    I don’t like my current situation but I also know it’s far from a bad situation. I live in Canada, I own a house and have a good well paying job, I’m in good health… things could be a lot worse. But by investing in the future and creating websites it’s true that I have an optimistic view of my future. Or, to be exact, I don’t have an optimistic view of my future and I want to change that by doing what I do today.

    Your post made me think about something else… I want to let something after me for my kids and their kids if possible. My aunt has tracked our family genealogy back into at least 400 years and presented that to us a couple of years ago. Most of my ancestors have died with debts… I felt it was sad and that I had to change that for the better. So I guess that even when I’ll reach retirement, I’ll still want to build something for future generations.

    And this is not because I am optimistic but because I have a pessimistic view of my own family and future and of the future of future generations of my family. But it is also true that if I invest, it is because I have an optimistic view of what those companies and economy can do.

    That’s a lot of food for thoughts lol

    Cheers
    Allan recently posted…Sold ARCP bought EMR!My Profile

    1. Allan,

      Thanks for relating so much of the post back to your personal circumstance. A lot of what you said really spurred me on to write this post in the first place. Most of the investors I speak with are also hard realists and skeptics, which makes it seem counterintuitive that that may be labelled “eternal optimists” as well. It’s just that if you don’t believe that the future can be better, you are unlikely to invest at all.

      As for your family situation, mine too has had a largely bleak financial past. I think seeing what hasn’t worked oftentimes spurs us to strive for something greater.

      I think we’re both moving on the right track.

      Take care!
      – Ryan

  2. I don’t necessarily think eternal optimism is a good thing. It depends on what country you’re in. Warren Buffett said “don’t bet against America”, and he’s been right. But other places like Africa on the other hand – investors get clobbered time and time again.
    Tony @ Inequality Today recently posted…Social Security Will Not Run Out, But It Will Be Under Increasing PressureMy Profile

    1. Hi Tony,

      I suppose that what it comes down to is that you have the choice to be an optimist and a pessimist. In my experience of life as an investor and a person in general, I have found that optimists tend to achieve greater results. Taking risks implies a sense of optimism about positive outcomes that can be achieved. Pessimists tend to see all of the risks and the downside angles to things but don’t take the next step and get some skin in the game. As a consequence, the optimist gets exposed to upside while risking downside with the pessimist being ravaged by opportunity cost and having no upside possibilities.

      As you mention, locale can play a significant role in the chances of achieving success as an investor, but I still believe you would be better served as an optimist whether in Africa, the United States, or anywhere else on our planet.

      Thank you for your interesting take on the article,
      – Ryan

  3. DivHut says:

    You know, I never thought about investing in this manner… “To invest implies an eternal optimism.” Watching the news, reading about all the crap going on in the world, financial talking heads (who really know nothing) speaking of doom no matter if the market is at a low or at all time highs, there’s always a poo-poo opinion being spouted, we always look towards the future which does imply that we think it will be better than today. As dividend investors we often speak of our future selves and how happy we are making him/her by our actions being taken by our present self. Great post, makes me feel extra good going into the weekend.
    DivHut recently posted…Recent Stock Purchase – May 2015My Profile

    1. DH,

      I’m glad you really enjoyed the post. As you mentioned, dividend growth investors are particularly keen on huge amounts of optimism. When you’re talking about DRiPing a stock for the next few decades, you’re factoring in a LOT of upside for years to come.

      Have a good weekend!
      – Ryan

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