Are You a Market Optimist or Pessimist?

Worried about the stock market? Join the crowd. Did you know that fully one-half of the other participants in the stock market are pessimistic about it? Remember that for every share of stock that is purchased, there is a seller on the other side of the trade. The buyer is optimistic about the stock he buys, and the seller is pessimistic. So, simply put, half of market participants are pessimistic.

As the Wall Street saying goes, in the long run “the market climbs a wall of worry.” Despite all the legitimate concerns of the day, ultimately the direction of the market has always been up. Indeed, the long-term experience in a well-diversified market portfolio has famously been called the “triumph of the optimists.”

To illustrate, the S&P 500 Index of closed at 92 in 1970. Last month it closed at 1,183, up by a factor of almost thirteen times.

You can bet that on every single day of that 40-year period sellers and buyers alike fretted over the future. They had good reasons for concern, too: inflation, wars, government debt. The optimists won, though, because they kept their worries in perspective … and held onto their portfolio.

About the author

Tom Posey, CFP®, J.D., AAMS

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