Bet on OPTIMISM

As we approach the final week before the 2024 Presidential Election, we wanted to revisit our writing from the previous election.

We found the following note that we wrote exactly ONE WEEK before the election back in 2020.

We felt the themes here are 100% applicable today.

Enjoy the note, and have a great weekend!

Last week, a friend asked me to present to a group of Arizona State University students – mostly in their late teens and early 20s – taking a class on investing and money management.

Throughout my career, I've always enjoyed events like these. One reason is that they allow me to share what I have learned—good and bad—over my 25-plus years of investing.

The other reason is more selfish, however... It often leads me to crystallize some of my thinking about investing.

The most interesting question my friend asked me to address in the presentation was: "What advice would you give to 21-year-old you about investing?"

Regular readers shouldn't be surprised at my one-word answer: "growth," which means to invest in growth companies and stocks.

He laughed and said, "We know that one! You've said it 50 times in the last hour... But besides growth, what would be your second-best piece of advice?"

At this point, I was a bit flummoxed. Those of you who have seen me on video know that I'm seldom without a response, but I sat there and really thought... and thought... and thought. Finally, I said...

“Honestly, I don't have a second piece of advice. A focus on growth investing is so much more powerful than anything else you can do that it would be all the top 10 pieces of advice I would have. No. 10 would take some time to enjoy investing... but No. 1 through No. 9 would be investing in growth companies and stocks.”

This is the honest truth. Had someone really emphasized this to me when I was 21 years old, not only would I be much wealthier than I am right now, but I also would have been much less stressed.

But despite my belief in the superiority of growth investing, there's still volatility. You can lose a lot of money in the short term... and if you're wrong, you can lose a lot.

And yet, if I look back at my career and the amount of mental energy versus return that I spent on growth stocks compared to other types of investing – such as value or distressed – it's not even close. The "stress to return" ratio of growth is 50 times better!

The events of this past week had me thinking even deeper about this advice...

We've seen considerable angst about political events, a surge in COVID-19 cases in both the US and Europe, and a correspondingly difficult stock market.

As I considered my advice to myself in this context, I began to think about it in a new light... instead of "growth," I would say "optimism."

I remember when I began my professional investing career and worked for a 40-plus-year market veteran named Martin Sosnoff, the founder of Atalanta Sosnoff Capital.

I was in my mid-20s then, and I would have to give Martin presentations on stocks right after the market opened. (I still remember those meetings so clearly... He was always smoking a big fat Churchill cigar as I sat down with him.)

What sticks out are the times that I brought him an idea that I had spent a hundred hours on, built an extensive model for, and done tons of boots-on-the-ground research on. I would excitedly go through the idea and my model in detail.

After my hour-long presentation, Martin would sit back and say, "This all sounds very interesting... but remember, all you really need to do is find some really great companies. Buy those and forget about it."

In retrospect, I wish he would have been more forceful and said instead, "You idiot! You're wasting your time and energy with all this minutia. Buy the damn great companies and focus all your energy on just finding those."

Like I said, I would be a lot wealthier and a lot less stressed.

However, thinking back to the concept of optimism, Martin's advice could be applied to the economy and society overall.

Across the past few centuries, if you had taken the bet that humanity would improve – less poverty, less death and war, less disease and hunger, etc. – you would be correct... Especially across the past 50-plus years.

Of course, there are geographies and specific times when this isn't the case, but overall—and especially in the developed world—it has been overwhelmingly true.

This brings me back to today...

I've previously published my thoughts on COVID-19 and continue to hold those views, mainly that the virus is in the process of burning its way out and that we may arrive at low death counts soon—perhaps even soon enough to render a vaccine unnecessary.

However, even if I'm wrong, we know that the virus will eventually be solved. There's zero doubt about that. It's just a matter of time before we win.

The economy is the same. The recent third-quarter gross domestic product ("GDP") numbers in the US were strong—the 33.1% annualized sequential growth figure is the figure we hear the most.

But what I find most interesting is that the US economy was only 3.5% smaller in terms of GDP than it was in the fourth quarter of 2019. Think about that for a second. Despite everything that has happened since then, the economy was only 3.5% smaller. That's amazing.

Again, my views have been constructive. I believe we've now entered four to six quarters of global synchronized GDP growth unlike anything seen since World War II.

It's physics. Businesses that were closed – by government mandate – will open. Not all of them will survive, but a large percentage will go from closed to open. That's big growth.

Throw on the most massive fiscal and monetary stimulus we've ever seen, and that's a good thing for economic growth. Economic growth is good for stocks... and there's zero doubt about this growth. Again, it's just physics... and again, we win.

The last of the big issues weighing on us all is politics. It's also a topic that I haven't expressed an opinion on.

The only thing I'll say is that there have been many times when the US (and the world) has been fractured and violent... Even much more so than today.

Despite all those times, we've found our way through and pushed forward to even greater success for mankind—less hunger, poverty, war, etc.

Nothing has happened to lead me to believe that isn't still the case, which means the best advice I would have for 21-year-old me is: "Bet on optimism, and you will ultimately win. "