Thursday, October 16, 2008

On Optimism (or embracing your inner Eeyore)

Though on the grand scale (such as the future of humanity), I am an unrepentant optimist. On a more personal level, I believe that some friends said it best when, in response to the burning 'which Winnie the Pooh character are you' question (many, many years ago), I was declared Eeyore. There are many potential explanations for my reflexive gloom (nature, nurture, socio-economic life experiences?), but it is certainly true that I feel my best when my outlook is of the worst. (Perhaps related to the physical discomfort I experience when living places with far too many sunny days.)

But let's examine this question pragmatically. How is the world these days? On the grand scale things are looking pretty good. Warfare, major plagues, witch hunts (in the literal sense), child mortality, crusades, human sacrifice, So2 emissions are all down. Literacy, dental care, 5 hour trans-Atlantic flights, use of clever political satire, indoor plumbing are up. That's good. On a more immediate scale, things are more dodgy. We seem to have gotten ourselves into a baffling economic quagmire that will not be solved quickly. And while some are falling faster now, methinks we will all get our "due" in the end. (In other words, "Main Street" meet "Wall Street".)

I see a distinct difference between the attitudes of my IM recruiting friends and the attitudes of the others. (I don't really know any aspiring ibankers.) The non-IMers seem relatively at ease, most of them have offers and the biggest question they seem to be grappling with is whether or not to take it. Many of the IMers saw our funds unraveling at the seams over the summer and find ourselves competing for an ever dwindling number of listings. And trust me, no fund manager not actively recruiting for new hires right now, has any interest in hiring at the moment. But it's not just that. This summer, guys who have spent a lifetime in the industry kept telling me - this is the worst I've ever seen, this is a complete disaster, go get yourself into a PhD program, these markets are unbelievable, these markets are rigged. And that was before the indices dropped some 20% in the month of September/October. (I've lost track of the score at this point.) And my conversations with such folk continue to be very dour. To convey otherwise at this point would be disingenuous.

As Taleb's tales of his childhood in Lebanon remind us, the world can go to hell in a moment, and expecting a rebound (we were happy then, we can be happy again soon) can be sheer foolishness. While I appreciate one thoughtful first year's comments that American-style optimism can have a healing/inspiring effect, lots of optimism is based on naive extrapolation of a recent past which may never be seen again. And true hardship is a very faint memory for many Americans. A good dose of pessimism might be more productive sometimes.

Similarly, think of how we ambitious, aspiring folks move ourselves towards the end goal, we seek out stories of success and see our own potential mirrored in the achievements of others. This is optimism and generally its good for us. This works reasonably well in up markets (labor, equity, real estate, etc.) but can be a practical and emotional challenge in lesser times.

The following statement from Cliff Asness sums up my feelings on luck and fortune (and, by extension, the place of optimism):

I will pause for a moment to stress the importance of luck in one's life path, which is often downplayed in autobiographical work. This isn't particularly useful advice (go get lucky!), and I do not mean it fatalistically, as hard work and courage really can put you in the right place to get lucky, but especially for an empiricist, to deny the role of fortune in terms of their highly path-dependent nature of life is just excessively egotistical.

So until I fully dismiss the role of luck in life (for the better or worse), I can never whole-heartedly embrace unbridled optimism. And I can't help but feel that with a few more Eeyores in the finance industry we would never have gotten into this mess in the first place.

[Next up - how I feel about Investment Management.]


ozzie said...

Haha, love your new byline. "anonymous" is bitter that his blog isn't getting as much attention. don't waste time on the haters, just brush them off.

great post again.

Anonymous said...

"baffling economic quagmire" - greatest description/euphemism ever!!!