“Optimism is Pessimism about the dangers of Pessimism” -Tyler Cowen

I recorded this month’s video on Monday September 30th, the last day of the quarter.  Not only do I give a recap of what happened in the 3rd quarter, but I also reference my previous two newsletters about volatility (below average volatile year) and politics not mixing well with investments.  The last time we had a constitutional crises was the impeachment of President Clinton, and the unmanaged stock market indexes were up 28%.

And I reference the importance of keeping your emotions in check, and asking yourself “does my optimism or pessimism help or hurt me?”

The reason I am so specific regarding when I recorded the video is because it was the afternoon before a two-day 800 point decline in the unmanaged stock market index Dow Jones Industrial.  This made the national news.

No one likes to sound like Baghdad Bob, so I considered re-recording the video. Wisely, I chose to let the video stand.

I was letting myself fall into the “recency bias” in my decision making, which is weighing more recent data heavier than the data as a whole.

The economy and stock markets are very complex, with many variables and inputs.  A few reports and days mean very little in the big picture or over the long run and it’s so easy to let yourself be sucked into the pessimism of one data point or another.  We can’t extrapolate good days and assume they’ll all be good, and the same for negative ones.  But, this is so easy to do, and we must resist it to be long term successful!

I’ve been meeting with clients for over 28 years; this past week was a good reminder that I’m human too. I’m glad my experience allowed me to acknowledge the feelings I had but not be controlled by them.

I stand by my video, and ask “are your emotions helping or hurting you?”.



Hi there. Mike Brady with Generosity Wealth Management; a comprehensive financial services firm headquartered right here in Boulder Colorado and today I am recording this in Boulder Colorado. Last three videos I’ve done from my cabin up in Wyoming and as you can see the quarter is over, the summer is over and I am now back here working in Boulder. I was working up there, of course, but here I am back in Boulder. Boy there’s a lot of people and a lot of traffic in comparison to where I was.

Sometimes it feels boring when I’m doing these quarterly videos I’m sitting here like “okay what exactly should I talk about, what’s the most impact that I can make in the few minutes that we have together?” The reason why is it comes back to the fundamentals time and time again. First let’s do a quick little recap of what happened this past quarter. It was up. It was another positive quarter the third positive quarter in three, you know, the S&P and the Dow Jones, which are unmanaged stock market indexes, we’re up over one percent, the NASDAQ was pretty much break-even it was down .1 percent give or take a day it was positive or negative. There was a lot of volatility in comparison to what we’ve seen recently this past quarter, but nothing that’s way out of the ordinary. Yes on August 5th there was a three percent decline in one day, but there’s an old adage that the market takes the stairs up and the elevator down meaning that it might go up very slowly and have a dramatic downs, but this is a long-term game that investing is. It’s three steps forward one step back, three steps forward one step back and if you obsess over the backward steps and are fearful of the backward steps you’re never going to have the forward ones. That’s my opinion. That’s why I kind of get down to the fundamentals.

One of the things that this year and last year have shown, at least for me, just I‘m an observer of people I talk with people all day long and clients and just other people out in the world are this obsession with the news and with how that might impact particular investments. And all I have to say is I think that you’re going to be better served by not being super on the high side and super on the low side. The last two or three newsletters that I’ve done I’ve shown how there’s a perception that it’s been really volatile and that’s just not true. Go back and watch August’s video where I talk about that and I throw the statistics in saying that’s just not true. The video before I talked about the presidential impact and how that’s not true either. I think that we’ve got to keep our politics and our investments completely separate. So, if you feel very strongly that what the president does is going to affect your investments, sorry I’m just not on board and history going back I think I did studies all the way back to 1920 will prove that. So, if you still feel that great you’re welcome to go and feel that all day long, I’m just not into feeling how they affect my particular investments.

That’s why when we’re dealing with other people who are getting excited about this particular news item or that one or you hear the news pundits really getting you riled up, better is to be you’ll be well served by doing the middle way as it’s called, not getting too excited on the high side, not getting too excited on the downside. We had normal volatility frankly in comparison. More volatile than we’ve had all year, but this has been a relatively below average volatile year. The S&P 500 I’m going to put a chart up there you’ll see that the S&P earnings are as high as ever and continue to be higher profitability so I’m not sure what the hubbub is. We’ve got fixed income this year, which are unmanaged bond indexes in general are positive again in single digits, not quite double digits, you know, ten percent higher, but very nice if you’ve got bonds. So, the unmanaged stock market indexes are up, the bond indexes are up, I mean yeah let’s be excited about this. Unemployment is at an unbelievably low amount that has been decreasing for the last ten years. We have inflation that is unbelievably low. We have a yield curve that everyone was like “oh my God should we jump out of the window from my big skyscraper?” And the answer is no. Do we even hear anything about that? It’s so important that after four days nobody talked about it anymore.

I talked about this briefly last month’s video I think this was actually September’s video and I just said no I don’t believe that it is a harbinger of what’s going to come or negative things. When everybody is watching something it becomes less affective and we can find, I mean this is a behavioral part of the mind where we find patterns where there may not be patterns and it made lots and lots of news it’s so important that nobody talks about it anymore so that’s just kind of my thought.

Talking about politics, let’s not forget that the market in the early ‘70s when we had a constitutional crisis lost 30 percent. When Bill Clinton had another constitutional crisis that impeachment and then his acquittal the market went up 28 percent, the unmanaged stock market indexes went up 28 percent. So here we’ve got one in the early ‘70s and there was a lot going on there, high inflation, oil embargo, it was not just Watergate. And Clinton other things were going on as well they were very positive, but during that time the market rallied and very nicely. Did it decline starting in the beginning of 2000 due to politics? Absolutely not. It had been a bubble in the tech for a long time and that’s what caused it, not anything to do with politics.

You always have to ask yourself are my emotions helping me or are they hurting me? And I recently read a quote that I want to say here that I just absolutely love and I’m going to put it on my newsletter as well: “optimism is pessimism about the dangers of pessimism”. So, if you’re pessimistic I would argue that doesn’t serve you well. Three out of four years historically have been positive in the markets. Even from the worst of the particular years leading up to elections is still positive. So, optimism is pessimism about the dangers of pessimism. And so yeah I have a tendency to be optimistic, I mean I have been doing this for 28 years, I’ve seen it, most of the time when you talk with me I’m pretty middle of the way hey yeah how does this affect things long-term? I’m sorry, why are we getting all bent out of shape? I’ve seen this only a hundred times. It might be the first time you’re seeing it, but I’ve seen it many times and historically, I’m a student of history, it has happened many times before so how has it turned out from all these other situations even if it might be the first time that you’re experiencing it. And it might be very real to you so I take nothing away from the emotions that you might be feeling, I’m just questioning whether or not those emotions are helping you. So, you ask that of yourself how is it helping you your happiness and your particular investments.

That’s it for this quarter. No reason in my opinion that I’m going to be overly pessimistic. I continue to be optimistic. That has served us well, not only this year but in pretty much most of our years as we’re looking towards and as we look towards long-term being optimistic is much better than being pessimistic, it serves you well. Mike Brady; 303-747-6455. Always here if you have any questions any concerns. Have a wonderful week, have a wonderful quarter and I will talk with you next month. Bye bye.