Why do pessimists sound smart, and how does being an optimist pay off?
20-Mar-2023 •Dhirendra Kumar
Pessimists sound smart, but optimists make money. Our cover story of 'Mutual Fund Insight' April 2023 issue is the ultimate exercise in optimism. Somewhat unusual among our cover stories, it's not about a specific type of investment but the broad concept of equity investing and some fundamental reasons why this is the only way to invest.
Our story here will play out over decades and has been playing out since 2014. At this point, the tremendous pace and scale of change that the country has picked up is no longer a matter of optimism but of fact. We have done this cover story because when you assemble the facts from the diverse areas, only then do you see the full picture of where the country is going and how far it can go.
To be sure, there are plenty of naysayers. Many people will give you cogent, well-worked, intelligent-sounding reasons why reality is not so cheerful. One reason is that everyone saying that finds it easy to make it sound like a well-reasoned case. They'll talk about wars, inflation, interest rates, energy prices, and many things like that. That's all fine and very important. However, remember one thing someone said: pessimists sound smart, and optimists make money. Why do pessimists sound smart? Because they are full of facts, trends, numbers, etc., of the kind I've mentioned above.
Optimists also do this, as we have done in our cover story. Still, they rely far more on appealing to principles and faith in human endeavour, especially beyond the immediate future. Pessimists will say something like - interest rates will rise from X to Y, and therefore, Z per cent of companies will see their finance cost go up by Rs W crore. Sounds really smart. An optimist will say yes, sure, but you know what? Well-run companies with competent management will find a way to deal with this and still do well because they have done so in the past. The pessimist will talk about the limits of growth that can be driven by infra, while the optimist will assume that since poor infra limits growth, great infra will boost it. No argument.
The optimist sounds really lame here, like someone who doesn't have the requisite knowledge or facts and is just cheerleading. Our cover story of 'Mutual Fund Insight' April 2023 issue might sound like that, except that the optimist is more likely to be correct and more likely to make money, both as a businessman and as an equity investor. Be a realist in the short term and an optimist in the long term. That's the unbeatable formula.
In India, we have a longstanding tradition of experts living in their ivory towers and their bubbles in Delhi and Mumbai being wrong on everything, whether it's politics or economy or anything else. People outside the punditry bubble, with skin in this game, look at everything very differently. In a way, the experts are like fixed-income investors, while the current leadership and the ordinary people who are toiling to have a better tomorrow are like equity investors. The last three decades have proven that all that Indian businesses need is the basics to go right and we can get exponential growth.
In a very fundamental way, being an equity investor is an act of optimism, while being a fully fixed-income investor is an act of pessimism. Equity investors know that there will be many hiccups along the way. There will be many days, months and even years when they end up poorer rather than richer. However, they also know that they will be winners if they persevere.
That's an entrepreneur's exact spirit, which we now have as a country.
This editorial appeared in Mutual Fund Insight April 2023 issue. To read the cover story and other insightful analyses, columns and articles