Optimism will always win in the digital economy

Financial advisers can’t be faulted for feeling pessimistic about the future as another year comes to an end. The last few years have seen the advisery world turned upside down, with those who remain paying for the sins of others.

But regulation is only one part of the story, as their primary role providing strategic and investment advice has become more difficult than ever. The proliferation and growing availability of investment information and commentary has complicated matters with the loudest voices being rewarded with most coverage.

The result is a near crescendo of coverage and news flow that seems to always lean towards the negative. We all know, by now, that fear sells much easier than positive or happy news. Financial advisers probably know this better than most.

As one of the few groups within the booming financial and investment community that sits at the actual coalface in front of the end client or investor, advisers are constantly faced with the tough questions. What are we doing about inflation? Should we be investing in crypto?

Any adviser will know that clients will always ask the most questions about the poor performing investments, regardless of how strong the top line performance has been. Naturally, it is easy to tilt towards negativity and pessimism.

Yet a look back at the last five, ten and even fifteen years shows that optimism, not pessimism has been rewarded. For every Grantham, Soros or insert other expert, that is calling the market a bubble, there has been a generation of investors looking towards the future.

There tends to be one major thing in common with the loudest voices calling out bubbles and markets being ‘overvalued’; they have already made their money. In fact, many of them are well into their retirement years and hence have a very different view of wealth. Consider inflation for instance, does a 30-year-old millennial at the beginning of their career, with few assets to speak of, really care about prices going up 3, 4 or 5 per cent? On the other hand, a billionaire in their 70’s who no longer has the ability to earn additional capital is clearly worried about protecting what they have from the ravages of inflation.

Every time the market has fallen, experts have written off capitalism, questioned valuations and in many cases forecast we were in for ‘lower than average’ returns. After every crash, those willing to be optimistic and buy on the way down or even on the way up, have been rewarded in spades.

Why has optimism paid off? It goes back to the old ‘animal spirits’ concept, in that people inherently look towards the future. The economy, powered by digitalisation and computing power, is evolving faster than at any time in history. Traditional companies are being disrupted alongside modern technological businesses.

Those who remain stuck in the traditional mindset of finding ‘undervalued’ companies have outperformed for a decade and will likely continue to do so for another decade. At the opposite side of the value and pessimistic investor, are people like Elon Musk, Cathie Wood of ARK Invest and the universe of crypto investors.

Each of these people are firmly focused on the future and have consistently delivered for many years now despite being constantly called ‘crazy’ or told they would be bankrupt. The story is similar in crypto, which I must admit I have not had the ability to comprehend. But the world is changing in many significant ways that can no longer be seen through the lens of the past. 

As hard as it can be to shift a mindset ingrained through years of experience and education, it may well be time to be optimistic.

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.