We believe key personality traits to investing well are patience and an even temperament. But above that, investing requires the belief that the future will be better than the present. Fortunately, history is on the side of the optimistic investor.
Progress can be measured in many different ways. The increase in life expectancies can be attributed to medical advancements over the years. Technological advances have made life more efficient and save us time including the invention of the computer, internet, digital cameras and the iconic combination of all of those, smartphones; where we can check our email and bank balances while standing in line at the supermarket. Progress can also be measured in the amount of leisure time we have, increased freedoms and even changes in how we fight wars or negotiate for peace. Perhaps arguably, I think that in each one of these measures the world today is in a more advanced place than at any time in history.
A simple example is to compare your life to that of your grandparents, parents, children or grandchildren. From one generation to the next, the quality of life has improved by most measures. Recently my 10-year old daughter and I were going through a bin that held pictures from when I was in high school. I heard her ask, “Mom, what is this?”. When I looked to see what she was referring to, she was holding a photographic negative. The concept of the type of photography I grew up with is completely foreign to her. All she is familiar with is digital photography.
Of course progress can and often does lead to new problems. Creating solutions to these new problems is the way of the world – and is often done through for-profit enterprises that trade on public exchanges. Investors then have the opportunity to share in the profits of these companies without being a part of the day-to-day operations. While being an investor can be nerve wracking at times, especially when looked at in the short term, a well-diversified portfolio of stock market indexes has an oft repeated history of recovering after a major collapse. As depicted in the chart below, look at the stock market as a whole. You can see over time how the market has grown. Investors must be able to look optimistically beyond the short-term because pessimism often encourages poor, emotional decisions.