Pessimists, bears, and bores: you’re crazy, not me

I’m waiting on the sidelines, ready to go on stage for my speech.

Our editorial director Greg Canavan is introducing me.

We’re at the ‘Assembly of Fat Tailers’.

This is a private function with about 150 attendees.

Fat Tail Investment Research hosted it a few weeks ago in Melbourne.

Greg says:

‘Let’s welcome the most positive man in finance.’

Hmm, I think, as I walk up. That word positive again.

You see…

Before the speeches began, there was an hour or so of chat and drinks.

A few of the attendees kept saying something similar to me.

‘Are you always this positive?’

‘Why don’t you agree with [insert: well known doomer]?’

‘Aren’t you worried about [insert: debt, property, inflation, etc]?’

Or even this…

‘You! You’re too positive!’

There was a vague air of me being the oddball for thinking the world wasn’t going to hell in a handcart.

Don’t get me wrong. The market’s been in a tough space since 2021.

But it’s not as if there’s been no opportunity.

And there are so many reasons to be positive going into 2024 and 2025.

The rational person — to me — should be buying stocks while they’re cheap, unloved, and most are scared off.

When it’s the reverse…well, that’s when you look to sell.

So goes the theory, anyway.

History is on my side here…

The Psychology of Money
two million copies sold…and growing

I recently read the book The Psychology of Money. A guy named Morgan Housel wrote it.

It’s been a smash hit.

Check out the whole thing if you get the chance.

Here’s the part I want to bring to your attention to today.

Housel has a chapter on how pessimism continually seduces people into being bearish — even against the odds and the facts.

Put part of it down to a quirk of human nature.

Housel writes:

‘Pessimism isn’t just more common than optimism. It also sounds smarter.

‘It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk.’

Indeed.

Housel gives several more reasons why pessimists can have a field day at any time, usually.

I found this one compelling…

‘Progress happens to slowly too notice, but setbacks happen to quickly to ignore.’

Just think of the fears that have rattled around the market this year…

We’ve had:

• US banking scare
• US debt ceiling standoff
• Ongoing Chinese property crunch
• Interest rate rises
• Bond market volatility
• Hamas attack in Israel

No doubt you’re aware of every one of these issues.

I told the crowd at the Assembly of Fat Tailers that I have now been at the company for 12 years.

Every year someone, somewhere, has blabbed on about why US stocks were a bubble, or the US economy is on the ropes, or some other bearish babbling.

Reality check: the top 500 US stocks have returned an annualised 11% per year since 2013.

Some investors can do better than this too.

There is always opportunity, every year, even if the averages don’t show it.

Go to that list of ‘issues’ we’ve faced this year in the market.

Even so, looking back, some may have bought, say, James Hardie Industries [ASX:JHX] at the start of the year.

They’d be up about 80%.

JHX is currently rocking record cash flow and great margins — despite the obvious and pessimistic headwinds across US housing (its main market). I suggested this back in June right here in Livewire. 

Even better, some might have jumped on US stock on Nvidia [NASDAQ:NVDA].

It’s up more than 250% this year alone.

Of course, not every stock has done as well as JHX or Nvidia. Many have also taken nosedives.

But if you’re not looking with an open, positive mind, how could you find another opportunity like these?

Here’s another kicker to the bullish case

Every week, a guy named Charlie Bilello releases his favourite charts for the week.

It’s a great resource (which you can find here).

Let me show you a beauty.

For all the fuss made about US stocks, Charlie shows that their operating earnings as a group are near a record high.

See that here…

It makes perfect sense for US stocks to be rising while this is going on.

Wall Street also expects this earnings growth to continue into next year.

Now, I’m the small-cap analyst here at Fat Tail Investment Research.

US stocks are outside my area of expertise and focus.

However, the fear people have around the markets collapsing is keeping them out of the small-cap market.

That’s a mistake, in my view.

There’s astonishing value and potential on offer.

I named six stocks in that speech at the Fat Tail Assembly.

Each one is still looking very tasty since that event. 

How long before the general fear turns to FOMO?

I don’t know. I look forward to finding out.

If you’re keen to join facts, history, and odds on your side, I put five small-cap stocks down in a recent report. You can see more about that here. (We’ve sold one already after a takeover offer.)

Yes, small caps can be risky, volatile, and unpredictable.

You know that too, I hope.

Just don’t let the bears and bores stop you from at least considering the opposing point of view.

Misery might love company, but it rarely generates profits.

Optimism pays, at least in my experience.

Best wishes, 

Callum Newman 

Editor, Fat Tail Investment Research