Following a promising beginning to 2023, it seems that gloomier news headlines have resurfaced, vying for your attention…

​As of writing, the ASX200 has pulled back just over 2% in less than 24 hours, Oil prices have retreated and American regional banks suffered another tough session with many entering trading halts during steep share price declines.

After a positive start to 2023, we appear to have returned to more pessimistic headlines trying to steal your attention. For the last few weeks, some analysts and commentators have been saying a pullback is inevitable, healthy, and should be welcomed.

Then, as it potentially arrives, so too do the egregious adjectives for daily market moves:

“Carnage.”

“Slaughter.”

“Chaos.”

These are just some of the terms used to describe the volatility in some stocks in the past 48 hours.

Yet, by our count, the All Ords is +3.2% year to date and the TAMIM All Caps and Small Caps Income are fairing even better.

As our mission is long-term compounding of capital, we maintain our optimism. We spoke about this recently, but as a reminder: “The World Doesn’t Often End”.

Yes, it may be repetitive to continuously talk about keeping your emotions in check and avoiding news with a short life span.

Regardless, this is a critical time to pay attention as an investor.

Napoleon’s definition of a military genius applies to investing: “The man who can do the average thing when all those around him are going crazy.” In other words, investors do not have to be geniuses to succeed. They just have to remain calm when everyone else is panicking.

Here are a few things to keep in mind to help you along.

Imagine if share prices weren’t volatile. Imagine they went up 8% a year, every year, like clockwork. Nice and stable.

What would happen in this world?

Nobody would own bonds or cash. Why would you if you could earn a steady, stable 8% return in stocks?

If the volatility of equities were to disappear, share prices would increase until they reached a level of return comparable to bonds and cash. This would mean that prices would continue to rise until they provided returns equivalent to high-interest savings accounts insured by the government.

However, if equities were priced too high without any margin for error, they would be vulnerable to real-world factors such as declining earnings, increasing interest rates, economic downturns, terrorism, diseases, and political instability, which would trigger a sharp decline in prices.

Therefore, if the stock market never experienced crashes, the high prices would eventually lead to an inevitable crash. This is why the stock market has always been characterised by cycles of boom to bust, rinse, repeat.

Volatility is the price you have to be willing to pay to earn higher returns than other assets.

​Commercial air travel is comparatively safe due to the intensive learning and fixing process that takes place after every accident, reducing the likelihood of future accidents. This process is common across a range of industries, economies, and governments, with mistakes and disasters serving as critical lessons for future improvements. The success of this process is due to the fact that evolution teaches by destruction, not by showing what works.

Innovation often occurs during periods of stress and adversity, when individuals are pushed to problem-solve and find solutions. Nassim Taleb says, “The excess energy released from overreaction to setbacks is what innovates!”

While a world without accidents or setbacks may sound appealing, it would stifle motivation to improve and innovate, leading to a pessimistic outlook on the future – a world far less capitalistic than ours.

Don’t allow yourself to get sucked into this line of thinking.Take this quote from Seneca, the Roman philosopher: “Our fears are always more numerous than our dangers.”

Invest like an optimist.  That does not mean taking all the risk you can and swinging for the fences every time or not performing due diligence or having an appropriate portfolio design.

Being an optimistic investor means you need to look at things and envision how it could realistically work out.  Believing in capitalism and that owning businesses will work.