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Honestly, I'd prefer to be an optimist. I've struggled for years to become one. Although I identify better with pessimists, I really don't like to spend a lot of time around them. Probably most other people feel the same way. As a result, people sometimes think I'm a "quiet" or an "introspective" person. Really, I just don't want to be negative, so keeping your mouth shut is a good alternative. Optimists are happier, they're better at selling and marketing, and I have to presume they're better friends and family members. I'm willing to bet they live longer too, since pessimists probably make heavy use of anxiety to succeed. But pessimism has significant virtues. I think most of the research shows we're usually right and optimists are often wrong. As a pessimist, you assess all of the worst-case scenarios, and can then prepare for what might go astray. Pessimism is probably a good temporary coping mechanism as well, after all life isn't always so grand, and so we probably shouldn't force ourselves to feel happy when we're obviously not. This brings me to the topic of investing. As an investor, optimistic tendencies can be deadly to your wallet. If you're a die-hard optimist, I urge you to send your money to a trusted financial advisor and don't look back. If you don't, at best you're going to have mediocre returns, and at worst you're going to get killed in the market. As investors, we must absolutely be skeptical and consider all risks. Certainly with risk comes reward, but the objective is to minimize risk and maximize reward for any given investment. We should never just "hope" or "assume" that our investments will be successful. Yet that strain of die-hard optimism seems to be the prevailing force amongst US investors, whether they be investing in stocks, bonds, or the latest trend, real estate. It reminds of the phrase used to describe a second marriage as "the triumph of hope over experience". The histories of economies show the negative outcomes of a vast monetary expansion, large and growing deficits, asset bubbles, excessive consumer debt, and strong inflationary/deflationary forces. Still, investors here continue to turn a blind eye towards the great risks that are present in our economy, sometimes chanting such ridiculous mantras as "Don't bet against the US" or "Invest for the long haul" (at any price) or "Real estate has never gone down in value". Most US investors could use a healthy dose of pessimism right now. I think they're setting themselves up for an obvious disappointment. Central banks may never permit another Great Depression to clean out the financial system, but the likelihood of stellar forward returns from traditional asset classes is small. © 2005 Britton Fraley CONTACT
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