Systematic Relative Strength

This New York Times book review of Matt Ridley’s book The Rational Optimist takes exactly the right tone when discussing why optimism never sounds as intellectually compelling as the gloom-and-doom scenario:

…after surveying predictions from the mid-19th century until today, the historian Arthur Herman identifies two consistently dominant schools of thought.

The first school despairs because it foresees inevitable ruin. The second school is hopeful — but only because these intellectuals foresee ruin, too, and can hardly wait for the decadent modern world to be replaced by one more to their liking. Every now and then, someone comes along to note that society has failed to collapse and might go on prospering, but the notion is promptly dismissed in academia as happy talk from a simpleton.

Kind of funny, but true. Apparently the end of the world is plausible enough that every generation has a cult that gives away all of their worldly possessions and waits for the apocalypse. The willingness to contemplate disaster may also explain why investors are so flinchy and willingly pitch their long-term positions during a 3% pullback in the market. Investor panic seems to be an enduring feature of the marketplace.

Maybe Armageddon will happen someday, but historically it has been a poor bet. From an investor’s point of view, it is probably better to go with the happy talk from the simpletons.