Why sounding smart may cost you more than it earns you
There’s a strange irony in investing—one that’s easy to miss if you’re not paying attention to how we listen.
Time and again, the most respected voices in the room are the ones sounding the alarm. Those discussing bubbles, recessions, breakdowns, and black swans. The voices of caution, of concern, of pessimism. They sound wise. They sound prepared. And yet, over most meaningful stretches of time, they tend to be… wrong.
On a rolling six-month basis, equity markets show positive returns roughly 75%[1] of the time. Major drawdowns—those dreaded 10% or greater corrections—show up in only about one out of ten observations. And even when the market does stumble, history tells us it recovers, on average, within 18 months.
Those aren’t assumptions. Those are statistics. They suggest that the investor with a bias toward optimism, not unbounded enthusiasm, but informed, steady optimism, is far more often rewarded than the chronic skeptic.
So, why does the skeptic sound smarter?
There’s actually an answer for that. In a study aptly titled “Brilliant but Cruel,” participants consistently rated negative reviewers as more intelligent and insightful than positive ones—even when their commentary was no more accurate. The takeaway? We mistake pessimism for depth. We confuse complexity with wisdom. And nowhere does that dynamic play out more regularly than in the world of financial markets.
Being cautious, of course, has its place. We’d argue that risk management is one of the most underappreciated disciplines in investing, when done right. But risk management isn’t the same as pessimism. Risk management is preparation; pessimism is posturing.
Unfortunately, the market rewards the first, while the media and public attention often reward the second.
It’s not hard to see why. We’re wired to react more strongly to negative news than positive developments. And when someone paints a complex picture of potential ruin, we instinctively lean in, assuming that complexity equals insight. That’s the trick. Simple truths—such as the resilience of capital markets or the long-term benefits of staying invested—may seem too easy to be credible. But they’re still true.
Now, of course, there are exceptions—those rare moments when being deeply pessimistic and betting against the prevailing current has paid off spectacularly. Names like John Paulson or Michael Burry come to mind, who profited handsomely during the housing collapse or the 2022 rate shock. But those were not casual contrarian views. They were the result of deep, granular research paired with bold, concentrated positioning—wagers that required not just conviction, but timing, structure, and a willingness to be very wrong for a long time. For every investor who made billions going against the grain, thousands made nothing or lost far more trying. Betting on collapse is not a repeatable strategy; it’s a career-defining exception. Building wealth, in contrast, tends to be quieter, steadier, and more boringly optimistic.
Peter Lynch used to remind investors that more money has been lost preparing for corrections than in the corrections themselves. He managed Fidelity Magellan during one of the most successful runs in mutual fund history—not by making great macro calls, but by staying grounded in fundamentals and the underlying adaptability of good companies. He believed that the economy and the market weren’t some unknowable force, but the sum of individual businesses solving problems and meeting human needs.
And that’s a key point. Markets aren’t magic; they’re a reflection of value exchange. At their core, equity markets represent the collective efforts of tens of thousands of management teams adapting to new environments, overcoming obstacles, and finding new paths to profitability. When inflation spikes, they adjust pricing models. When supply chains are disrupted, companies often find new partners. When technology shifts, they invest, reinvent, and reallocate.
We often talk about “the market” as if it’s some independent, moody entity—rising and falling on whims, headlines, and sentiment. In truth, that moodiness is merely a reflection of us: the collective fear and greed of millions of participants reacting to uncertainty in real-time. But beneath that surface-level volatility lies something far more durable: the market as a reflection of value exchange and adaptability. It’s the accumulated effort of thousands of businesses meeting changing demands, reallocating capital, solving problems, and ultimately creating wealth. That’s why it recovers. That’s why it grows. Not because of stimulus or sentiment or central bank heroics—but because, under pressure, businesses adapt.
In a recent note, we made the case for being a Positive Historian—someone who studies the past not just for its challenges, but for the persistence and progress that follow. This is very much in that same spirit. Optimism isn’t a mood; it’s a discipline. It’s a framework rooted in history, supported by data, and practiced through a structured approach.
At Auour, we’ve built our philosophy around embracing that simple truth while still respecting the reality of risk. We believe markets reward long-term participation, but we also believe in building guardrails for when the environment deteriorates. Optimism and risk management are not mutually exclusive. In our view, they’re partners .And at this time, our “partners” are suggesting holding about 15% in tactical cash.
So no, we don’t traffic in doom. And yes, we accept that this might make us sound a little less clever at cocktail parties. However, we’ll opt for clarity over complexity. We’d rather be right than revered. Because in the long run, the optimist tends to end up wealthier—even if the pessimist sounds smarter along the way.
-
Auour analysis looking at U.S. and global equity markets as represented by the S&P 500 and MSCI ACWI Indices (or their predecessors). Past performance is no guarantee of future returns. All investments carry risk of absolute loss. ↑