That’s my default answer whenever someone asks whether I’m bullish or bearish as an investor. Here is what I mean by this…
Long-term optimistic
Compound returns are made over the long run, so you need to be long-term optimistic if you want to make a lot of money – it’s as simple as that. You need to believe that, over the long run, the businesses you invest in will perform well along with the economy and society at large. This shouldn’t be groundbreaking insight for most investors. It’s the second half of the framework that’s trickier.
Short-term pessimistic
To benefit from the long run, you need to make it there – this means surviving all of the short runs in between. The probability of any one adverse, but short-term, event (such as a pandemic, record rate hikes, egregious tariffs, recession, or war) occurring in a given year may be small. But add them all together, and the cumulative probability of an adverse event occurring each year is high. Short-term pessimism means acknowledging that you don’t know what will happen in the near future, but you’re prepared for a downside scenario.
Practically speaking, this means underoptimization to withstand temporary adversity. Add a margin of safety, keep extra cash/liquidity on hand, use a little less leverage, have some redundancy in staffing, overstock popular inventory, keep backup equipment, etc.
To summarize, a healthy dose of paranoia to survive any short-term blips, to benefit from long-term prosperity.