There are a couple of book treasures being extremely valuable especially for long-term-oriented Buy and Hold Investors.
Besides The Intelligent Investor written by Benjamin Graham and A Random Walk Down Wallstreet by Burton Gordon Malkiel I’d certainly put
- Stocks for the Long Run by Jeremy Siegel and
- Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul March and Michael Staunton
in my personal “must-have read investing books basket”.
The conventional wisdom that
- one should have exposure to the stock market
- through a diversified portfolio of high-quality stocks or/and Index Funds resp. Exchange-Traded Funds (ETFs) and
- hold these positions for the long run
has been empirically proven to be extremely rewarding for investors.
Triumph of the Optimists is particularly interesting as it brings the emotional aspect into the game.
In that book, 16 developed countries are analyzed and returns for stocks, bonds, and bills (as well as inflation) are provided for over a century, revealing that stocks have outperformed every other investment class by a considerable margin. The book shows that there have been golden decades for stock markets having built enormous wealth.
Just look at the 1950s in the US, for instance. Who but the most “crazy Optimist” would have even dared to dream that over the next fifty years on average the real return on equities would be 9% per year?
These extended “golden stock market periods” in the past decades have not been limited to the US, you can find them in several countries all around the world like Germany, Italy, France, etc.
Optimists due to their exposure to enterprise stocks have been triumphant throughout history, benefitting from economic recoveries, boom phases, new technologies, and the wealth of nations.
Why is it important – not to say vital – to be an Optimist? Isn’t it beneficial to be very cautious when it comes to investing? Realists or Pessimists should then have much better returns than Optimists, who often could be even seen as naive.
But empirical data is so clear: it’s the investor with a long-term vision, confident in his or her approach and optimistic in a prosperous economic future that is successful.
It’s the Optimists that have the vision and perseverance to stick to their holdings through thick and thin. It’s the Optimists that embrace volatility and take advantage of lower price levels to strengthen their portfolios further.
We all know the pitfalls of market timing and we all know that time in the market is the single most important investment element. Optimists keep their positions in L’Oreal, Nestlé, Colgate-Palmolive, Hershey, etc. They collect the ever-growing dividends and reinvests that money into their investment portfolio, taking benefit of the Magic of the Compound Effect.
Optimists don’t think that the glorious days of a great company like Nestlé or PepsiCo are over. Optimists don’t think that these giants cannot grow any further. Optimists don’t just focus on the lack of real Apple innovations but instead, they focus on Apple’s ever-growing ecosystem and multiple ways to generate cash flows for their shareholders.
It’s the Optimists, that see the Unique Business Models of companies like Pinterest or the dominant position of Facebook, or the disruptive power of Square as positive. They want to own pieces of such businesses.
Optimists not only see opportunities but also seize them. They take calculated risks. They rarely tap into the “Fear of Missing Out Trap (FOMO) – trap”.
Recent developments have shown Optimists excel again as investors. Back in March 2020, amid the global COVID-19 Pandemic, lockdowns all around the world brought social and economic interactions to an abrupt standstill. Stock markets everywhere crashed, falling sharply in a matter of just a few days. Pessimists would understandably remain at the sideline for months to come, instead of taking exposure at extremely attractively valued high-quality stocks. Some investors even sold off positions at market bottoms.
Once again, long-term-oriented Optimistic investors have been the beneficiaries.
Interestingly, people rarely are optimistic when it comes to their long-term view of the economy. And who could blame them: central banks have been printing money like crazy for over decades which historically is an abnormality as well as the huge amounts of public debts all around the globe. It’s more than clear, that this situation is unsustainable for the medium and longer-term.
But here again, it’s the Pessimists that will be affected negatively. They are extremely (and to a large degree understandably) cautious lets them remain at the sideline, overwhelmingly positioned in cash, avoiding the stock market. Not only will they miss out on huge stock market returns, but also be hit hard by inflation over the medium run.
It’s human, to focus on disaster, negative effects, problems. Don’t get me wrong, there will be tough times ahead. But just looking at the long-term stock market trends, it’s crystal clear: it’s the Optimists that will remain triumphant.
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.