The Case For Optimism

I’m going to attempt to relate college football to an investment principle. It may or may not work, but I’m going for it because I wanted an excuse to write about college football as it’s been at the top of my mind with the season starting up this past weekend.

There’s no other sport quite like college football. It’s full of pageantry and tradition. The tailgating, the marching bands, the student sections, the gigantic stadiums, the rivalries, along with the importance of every game make Saturdays in the fall a special experience. It’s also a regional sport. Some of the biggest football programs in the country are in small college towns where the team means the world to that community. In many instances, the football program is what sustains the entire local economy.

And while my wife would argue differently, the college football season is surprisingly short compared to other sports. There are only 12 regular season games, so by the time the long 8-month offseason that stretches from January to August comes to an end, the excitement for football is palpable.

This year, my beloved Utah Utes play the Florida Gators to kick off the season in a game I’ve been waiting to watch for months. I’m writing this before the game, so I don’t know the outcome. By the time you’re reading this, I’ll already have experienced the ecstatic emotions of a big win or be disappointed by a crushing loss.

That’s part of the excitement of this time of year as well—no team has lost a game yet so every fanbase is still optimistic about the potential of what the season can bring.

My friends and I were discussing our anticipation for the game a couple of days ago and the thought crossed my mind: “Why do we care about this game so much?”

I’m not sure I have an adequate answer. What causes us to care about any of the myriad of activities we involve ourselves in? Whether it be movies, TV shows, music, books, gardening, biking, video games, or anything else, there’s something in each of these activities that provides value to our lives.

With sports, the games can provide inspiration, entertainment, belonging, and connection. It’s like when you watch a long-running TV show and after a few seasons, it’s surprising how invested you are in the storylines and fates of fictional characters. They almost feel like your friends.

Now apply that experience to a sports team that’s been part of a community for decades and across generations of fans. It’s no wonder sports matter deeply to a lot of people.

One of the cool things about sports is unlike other forms of entertainment, it isn’t scripted. The outcome isn’t predetermined and the good guys don’t always win.

Because of this, being a fan of a sports team can be tough. If you’ve been a lifelong fan, whether it’s rational or not, odds are you’ve experienced some heartbreak. The nature of competitive sports is such that only one team can truly be happy at the end of the season, so there’s a lot of disappointment to go around for the rest of the teams. In order to cope with this disappointment and heartbreak, many fans turn to pessimism and low expectations. I see this all the time.

If a fan goes into the season with low expectations then they can’t be let down. They expect the worst and if their team happens to have a successful stretch, they’re always ready to turn on them at the slightest sign of trouble.

However, the problem with being a permanently pessimistic sports fan is that it’s no fun. And sports are meant to be fun. Supporting your team through the ups and the downs is what makes it so worthwhile. The championship tastes so sweet because the past heartbreak and defeat were so bitter. While fans may think they’re protecting themselves from getting hurt, they’re really preventing themselves from deriving any joy from it.

Now to finally get to the investment principle I mentioned, while being a pessimistic sports fan may not have any significant consequences in your life, being a pessimistic investor will.

In order to build wealth and grow your money, you’re going to have to believe in something. The very act of investing is an act of optimism. You believe that something will improve and increase in value. The historic upward trend of the markets is based on optimism toward the future. Pessimists may sound smart, but optimists make money.

The following graph from Dimensional illustrates this point:

Despite the many scary headlines and crises over the past 50 years, a dollar invested in a global market index in 1970 would have grown to almost $100 today. Historically, the markets have rewarded those who maintain discipline and don’t let pessimism drive their investment decisions.

Fear of a housing or stock market crash, of an economic crash, or of an incoming president will prevent you from making smart financial decisions for yourself.

To end, here’s some additional stock market data that should foster some optimism if you’re a long-term investor, which should include almost all of us.

Since 1926, the U.S. stock market has experienced positive returns:

• 56% of the time on a daily basis

• 63% of the time on a monthly basis

• 75% of the time on a yearly basis

• 88% of the time on a 5-year basis

• 95% of the time on a 10-year basis

• 100% of the time on a 20-year basis

As your investment horizon lengthens, a diversified portfolio becomes progressively less risky. Does this mean you’re guaranteed a certain stock return if you hold them long enough or that these same results are guaranteed to be repeated in the future? No. Investors should think in terms of probabilities, not guarantees.

But the closest thing to a guarantee that I know of is a diversified stock portfolio, held for a long time.

Thanks for reading!