Investors Are Better When They Are Pessimists

(Bloomberg Opinion) -- Should investors be optimists or pessimists? According to Morgan Housel, who is a partner at Collaborative Fund, the answer is both. In his new book, The Psychology of Money: Timeless lessons on wealth, greed, and happiness, Housel explains why your daily finances should be managed conservatively, even pessimistically: don’t borrow too much, assume you can lose your job and prepare for the possibility of no salary for six to 12 months..https://megaphone.link/BLM6915378984.As an investor, you are betting on the ingenuity of the human mind and spirit. As an example, Housel points to the airplane, which is arguably the most important invention of the 20th century. But self-powered flight was mostly ignored after the Wright brothers flew their contraption at Kitty Hawk, North Carolina, and in their hometown of Dayton, Ohio. It took many years before anyone truly recognized the economic impact of air travel, and on military applications, shipping, etc. The same was true for most inventions, even the automobile and computer. Housel asks, “What has been invented over the past decade that the investors today may be ignoring?”.Housel, a downhill ski racer in high school, describes the early part of his life and career, working briefly in investment banking and private equity, but neither excited him. A friend working at the Motley Fool invited Housel to try writing, and he enjoyed it. As Housel’s writing skills improved, he began winning greater recognition and awards. Housel explains why he writes toward an idea and not for any specific audience. Housel uses narratives to illustrate financial themes while sneaking in an important lesson..A list of his favorite books are here; A transcript of our conversation is available here..You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here..Be sure to check out our Masters in Business next week with Fidelity‘s Will Danoff, who manages the firm’s storied Contrafund, Over three decades of running Contrafund, Danoff has outperformed the S&P 500 Index by 3.21 percentage points a year..This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners..Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”.©2020 Bloomberg L.P.

Bloomberg

Company

Financial Products

Enterprise Products

Media

Customer Support

Communications

Industry Products

Media Services

Follow Us

Bloomberg Customers

BloombergQuint

BloombergQuint

Investors Are Better When They Are Pessimists

Bloomberg Quint