Pessimism

Little-known fact about me—I have actually hiked a decent part of the Appalachian Trail, about 15 years ago. I went from the Pennsylvania/New Jersey border to the Massachusetts/Vermont border. It is a tragedy that the only decent book about the Appalachian trail was written by a dillweed who couldn’t hack it and tapped out after less than a month. Then they made a movie about it. Terrible.

Anyhow, once you spend some time on the Appalachian Trail, it is expected that you will acquire a trail name. People will no longer refer to you by your first name, but by your trail name. It is something that happens organically; you can’t name yourself, like George Costanza with “T-Bone.” So I had spent a few weeks on the trail and I didn’t yet have a trail name, and I was getting a little tweaked. I was hiking with this guy named Terry, from Winnipeg, who looked a bit like David Cross, and he mentioned that there must be a shelter up ahead, and I was doing my usual Eeyore thing, saying, no way, that’s at least another five miles from here. And he said, “Pessimist. That’s your trail name: Pessimist.” And it stuck.

I have always been a bit on the dour side. Quick note: “dour” is pronounced like “sewer,” not “sour.” The more you know. I generally think the worst possible thing is going to happen at any moment in time. Last week my cat Uma was getting surgery. In my mind, I was writing her obituary. But her surgery ended up having the best possible outcome, as it always does. The way I look at this, is that if you always think the worst thing is going to happen, then you are never disappointed. I am the master of catastrophic thinking.

I will also add that there is a cult of optimism in financial Twitter. The guys who think that the stock market always goes up. I mean, it does, over time, but you can have some pretty big drawdowns in between, and there are guys who make a living trying to trade the drawdowns. This is how I invest my personal money: when the stock market is going up, I’m unch, but when the market crashes, I’m killing it. My wife knows me by now; if she hears that the stock market had a big down day, she’ll say to me, “you had a good day today, didn’t you?” And I just smile. It doesn’t mean that I’m short, or buying puts, but there are a lot of different idiosyncratic ways to express a trade that gains from disorder.

Here is the way I look at it. I don’t want my financial fortunes to be correlated to the rest of my life. If we have a recession, a lot of bad things might happen: you might get fired, take a pay cut, your house will be worth less, your business will shit the bed, there is a risk of bankruptcy—literally everything in your life will get worse, so why would you want to compound that by leveraging up your life savings to the business cycle and the vagaries of the stock market? At a minimum, you would want your portfolio to be uncorrelated to the economy, and ideally, you would like it to be a hedge. Wouldn’t you like to be happy in a recession, instead of sad in a recession, or at least, not miserable? Why do we do this thing where we truck along for ten years and then, whammo, everyone gets cut in half? Wouldn’t you want to spare yourself that stress? That’s no fun. You get these stupid fucking reporters who write stupid fucking pieces about how rich people are so dumb, because they invest in hedge funds, and everyone knows, hedge funds don’t beat the S&P 500, neener neener. It’s not about returns, you stupid fucking Columbia J-school graduate, it’s about risk-adjusted returns, and the depth and length of drawdowns, and it’s about not having your entire life correlated in one big ball of risk. My portfolio is a hedge on my life. If we get a recession, my business is going to suck, and I want something to offset my business sucking. Not too hard to figure out if you take one second to think about it.

The optimists like to talk about how awesome everything is, because…we have iPhones, or something? Let’s talk about the myriad ways in which things are worse than they were 25 years ago. Governments globally are much more authoritarian. Press freedom, social freedom, and overall economic freedom have declined. International trade is vanishing. There are more wars, and there is the possibility of many more. Birth rates have dropped dramatically. Drug use and overdoses have skyrocketed. Suicides have gone parabolic. The number of people experiencing depression or anxiety has risen dramatically. Political polarization only runs in one direction. Crime is up. People live in fear of saying or doing the wrong thing. And crucially, life expectancy is lower—the ultimate measure of prosperity is going tapioca. Really, the only way in which things are better than they were 25 years ago is that we can order a taco from our phone. Admittedly, this is pretty incredible, but now people spend so much time staring at their phones that they don’t even interact with each other. I would not characterize this as progress. 1999 was the peak of civilization, and we are never going back. Reason and enlightenment have diminished. Barbarism has returned. You know, there was a period of time known as the Dark Ages where reason and enlightenment disappeared completely, civilization receded, and we returned to might makes right. There is nothing that says that can’t happen again. It is also worth pointing out that the Dark Ages lasted about 500 years. Things are pretty terrible right now, and they’re getting worse at a near-exponential rate.

Now, I don’t dwell on these things. If I sat around and thought of how terrible things are, I’d be miserable. I’d like to point out that I’m not, in fact, miserable. I do my thing, I make money, I write books, and pursue my own happiness. I am a very happy guy. And I encourage you to do the same. I would also like to point out that I have a very low opinion of the doomers, the blogs and websites and newsletters that are constantly predicting market crashes and societal collapse. That’s nothing but pornography. Some of it is very good pornography, but let’s just say I stopped reading Zerohedge or Drudge many years ago. It turns you into an asshole, and makes you not a lot of fun to be around. Also, even as a pessimist, I acknowledge that things often work out for the best. But sometimes they don’t. There is nothing saying they have to.

I knew 1999 was the top. I was living in San Francisco at the time, in the middle of the tech bubble. Purple Yahoo! taxicabs roaming the city. Complete donuts making haystacks of cash on the P. Coast. Dot com billboards everywhere. People were throwing money at each other. And everyone was so damn happy. Lou Bega and Venga Boys were my jam. People were eating tiramisu at baseball games. We were so free, you could do cartwheels down the sidewalk wearing assless chaps and nobody would look sideways at you. When I say that I knew that 1999 was the top, I knew it. And I was very worried as to what would follow. Two years later, 9/11 happened, and that cemented it. Civilization has been in freefall ever since. Yes, but but but AI and EVs and SpaceX and blockchain and so on. Just because we are experiencing technological progress, does not mean we are experiencing social or political progress. In fact, the anomaly here is that we are experiencing technological progress in the midst of all this shit. And people take it for granted, that technological progress goes in one direction. Sure, it has, for 130 years. But it doesn’t have to. And in most parts of the world, it doesn’t exist. If there were someday an existential threat to capitalism in the United States, my suggestion would be that you sell your stupid index funds. We are always one election away.