Macro Minute: Week of January 13, 2025

You may have picked up from reading my blog that I am an optimist. I hope you have also picked up from me that I try to operate in the realm of reality and fact. You don’t see me commenting much in political jargon or conspiracy theory. I try to look at the data and realize that everyone has material constraints that will inform what they do. When I do that in my role as an investor, it leads me to be positioned favorably toward equities over time. It also leads me to know that my trajectory will not be a straight line upward, even though it feels like it has been recently. I try to let history be my guide along with reading the current factors at play.  

Back to being an optimist. I look at optimism like I do love. I think they are both choices we make, not emotions that we feel. Every morning, I choose to love my awesome wife. It is that act of actively supporting and nurturing our relationship that gives it strength. I can look back on the trouble and trials that we have traversed together and know that we will be there for each other no matter the circumstances we face. The same type of thinking leads me to be an optimist. I can look back in history and see that even through some very scary times, things resolve themselves out and improve over time.  

I am currently listening to the book “The Rational Optimist” by Matt Ridley. While I am not finished, his main salient themes are around comparative advantage, specialization, and trade. This takes me back to my many economics classes. I had to illustrate and compute how one nation would have a competitive advantage in an industry, utilize that advantage at scale, and export the excess for the betterment of all. If you think about it, this makes us very unique in that we can develop a set of skills that generate us a higher wage, and then use those wages to purchase goods and services to meet our needs and desires. We no longer have to be able to grow food, make our clothes, build our home, and educate our children all alone. We benefit from individuals specializing in a certain field who can perform their skills at scale. Now we can have elaborate things like cars, computers, and phones that we would have no way of making on our own, but that through specialization and trade most people now enjoy. 

In light of this continued development of innovation and economic growth, the natural conclusion is to be optimistic. That is not to say we do not recognize problems and constraints that arise, but to realize that ultimately human nature is to try and generate the most benefit. One of the problems when talking about being optimistic, is that the general public tends to disregard that view. People would much rather hear about something that is going to be a problem and try to avoid it. A pessimistic view point is many times looked at and given respect, even if in investing it tends to make you much less money over time. This is because we as humans feel losses twice as much as we do gains and ascribe a higher value on someone telling us to be fearful. If you look at media, they tend to idolize people that profited from big calamities. Think of someone like Michael Burry, who is introduced as predicting the housing crash and then gets a movie made about him. Very rarely do you see the same of someone that goes around being optimistic about the future but tells you tough times will happen along the way. You have to be in the industry to know a name like Peter Lynch. He made his fortune being optimistic about companies and had one of the better performance histories out there.  

I will probably come back to this topic from time to time because I do think that it is important. I want to be a voice of optimism while being rooted in reality. I don’t want to ever come across as a huckster trying to convince you with an emotional response. I want to present the data and look at history as the guide. When I do those things, it leads me to be optimistic about the future.  

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