“Optimism is a Moral Duty”

Dylan Potter, CFA, CFP®, Vice President, Wealth Manager

This newsletter is going to come across a bit disjointed. There are a couple different topics I wanted to touch on, so I thought I’d do a bit on each topic running through my head in quick fashion.

Kodak slide of beach held up into the light of a sunset

“Optimism is a Moral Duty”

I’m reading two great books right now. The first is called Angle of Attack by Mike Gray about the race to the moon. More specifically, it tells the story of the engineers, led by a man named Harrison Storms, who answered President Kennedy’s challenge and devoted their lives to accomplishing the impossible. It is the most inspiring book I’ve read in recent memory. The second book is called A Triumph of Genius by Ronald K. Fierstein. It’s about the battle between Eastman Kodak and Polaroid throughout the 1970s and 1980s. Polaroid, the scrappy upstart led by Edwin Land, disrupted Kodak (in what wouldn’t be the last time), when Polaroid debuted its SX-70 instant camera. Unlike any other camera in the world, the SX-70 asked the user to do nothing more than focus, press the button, and grab the picture as it emerged from the camera fully developed after a few shakes. It was the first camera to realize what Edwin Land said had been his dream all along with true “one-step photography.”

What’s amazing to me though is both Harrison Storms’ and Edwin Land’s relentless optimism. Today is better than yesterday, but not as good as tomorrow will be. Edwin Land is credited with saying, “Optimism is a moral duty.” What an amazing character trait to possess. Writer and investor Morgan Housel tweeted, “Optimism often sounds like a sales pitch, pessimism sounds like someone trying to help you.” This is because optimism seems to imply unbridled risk taking while pessimism seems to imply risk avoidance. Since most people are generally optimistic, those who present a pessimistic view of the future are often assumed to possess special insights, which make them more believable or credible sounding. But optimists can elevate any room they walk into. Pessimism and “doom and gloom” masquerade themselves as wisdom, when in reality the opposite is true.

Edwin Land’s radical optimism reminded me of a recent Elon Musk interview at the 2023 Deal Book Summit. Regardless of your personal thoughts on Musk, he said something of value: “Life has to be more than simply solving one sad problem after another. There have to be reasons that you wake up in the morning and are happy to be alive. You have to say why you are excited about the future. What gives you hope? And if you aren’t sure just ask your kids. And I think the idea of us being a space faring civilization and being out there amongst the stars is incredibly inspiring and exciting and something to look forward to…and there need to be such things in the world.”

It takes guts to be an optimist. Progress compounds slowly and to such an extent that we often barely notice it. Setbacks can be sharp and terrifying, yet somehow, we usually rebuild and the compounding of progress continues.

New Highs.

Well, the major indexes are back at all-time highs. Now comes the time when investors will hold cash, try to predict the next big correction or crash, smugly convinced of their ability to time the market. It’s a pipe dream. Believe me, I understand the sentiment. But it’s your ego and own biases distorting sound decision making. It’s easy to say you will wait until the next pullback. Our flaw, however, is that as humans when we visualize stock market losses, we imagine ourselves in some hypothetical world where the only thing that has changed for the worse is the stock market. But stock market drawdowns do not exist in a vacuum. What we cannot visualize is the state of the world that causes that stock market downturn and how it feels to live through moments where the headlines are filled with World War III jargon, pandemics, inflation, and civil unrest. If you weren’t investing through 2022 and 2023, what makes you think that is going to change in the future? All-time highs are an excuse to let perfect become the enemy of good enough. It’s these emotions, and their control (or lack-there-of) that can lead us down the path of continued wealth creation or sudden destruction.

Buying near all-time highs feels like a bad idea when compared to investing when the market is 20% or 30% off its high. But what does the data say about buying near all-time highs? Data from J.P. Morgan going back to 1988 shows that money invested when the market is at all-time highs has outperformed money invested on any given day! Capital Group published a more recent piece detailing the hypothetical investments in the S&P 500 over a 20-year period ending December 31, 2022. In the data, each investor contributed $10,000 each year of the study. One investor somehow managed to pick the very best day (the market low) of each year to invest. In that case, the average annual return on that investment would have been 11.43%. The other investor actually picked the worst day (market high) each year. Even with the worst investment timing, the average annual return would have been 9.48%. At the end of 20 years, the cumulative investment of $200,000 had a value of $549,645. Another amazing stat from Bespoke Investment Group research says, “Historically, the S&P 500 has been within 5% of an all-time high on 44% of all trading days versus 40% of the time it has been 10% or more below an all-time high.”

If you are deploying money into the stock market in the hopes of a quick profit, that’s speculation. If you are a long-term investor, continue to put your money to work if it fits within your long-term goals and financial plan. If history is to be our guide (see above: optimism), there will be more all-time highs in the future. Don’t let perfect become the enemy of good enough.

If you are reading this, you’ve won the lottery.

I don’t mean you literally won the lottery, but chances are, if you are receiving this email update, you’ve won the “life lottery.” You are at a station in life, where the wealth you’ve amassed has generally provided you financial freedom. We are so lucky. Two weeks ago, in the midst of a snowstorm here in Rochester, I ordered food through DoorDash for my wife and three kids. As the delivery driver pulled up in the middle of horrendously snowy conditions, I saw that he had his young kids in the car. Talk about a punch to the gut. In a world where making ends meet can be a daily struggle, the simple act of witnessing another’s journey brought into focus the abundant fortune I carry – the luxury of not being compelled to deliver DoorDash with my own children in tow. Maybe I’m projecting my views onto that driver. After all, I don’t know his story, but I can only assume that if he didn’t have to, he wouldn’t be delivering food on a snowy Friday evening with his kids in the car. There’s a lesson in there somewhere. We are so lucky. 

Disclosures: This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements. Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. Any information provided by H&R regarding historical market performance is for illustrative and education purposes only. Clients or prospective clients should not assume that their performance will equal or exceed historical market results and/or averages. The material listed in this communication is current as of the date noted, and is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Any information is for illustrative purposes only, and is not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality. H&R does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Adviser’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Unless specifically stated to the contrary, H&R does not endorse the statements, services or performance of any third-party vendor or investment manager. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/ or principal. A long-term investment approach cannot guarantee a profit. 

Dylan Potter

Dylan is a partner, Vice President and Wealth Manager at Howe & Rusling.

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