Why You Should Have A Bullish Bias

If you have a bearish bias, you have to be very aware of it. You have to work around it. And I always have – Stan Druckenmiller

Any man who is a bear on the United States will go bankrupt – JP Morgan

The main thing that held me back during the first part of my investing career was my bearishness. I viewed everything through a bearish macro prism.

I started Top Gun in 2006 to capitalize from the coming collapse of the housing bubble and infection of the economy that I foresaw. But when the market bottomed in March 2009, I failed to realize that the bear market was over and a new bull market had begun – one that has lasted 16 years, may still be ongoing and has produced enormous gains for those who have ridden the wave. On the way up, I was always looking for a top and my bias caused me to see one forming again and again.

The market doesn’t have to go up. It’s not inevitable. There are many countries and historical examples in which markets have gone down and even collapsed. But the historical record for the United States is one of consistent progress. The reason for this is what Warren Buffett has aptly termed The American Tailwind. The relative economic freedom of our economy allows entrepreneurs to efficiently organize industry and innovate – despite any headwinds from bad government policy. As a result, the chart goes up and to the right. It’s possible that that could change at some point in the future but for now you have to give the market the benefit of the doubt.

It’s so much harder to make money on the short side than the long side. Lesson 7 of Paul Marshall’s excellent book 10 1/2 Lessons From Experience is that “Shorts are different from longs”. I don’t have the book with me here in LA but the gist of it is that the whole structure of the market is set against short sellers. Companies want their stock to go up and so present their results in the best possible light. Government representatives want the market to go up since their position depends on it – and will do what is required to prop things up when the economy and markets turn sour. In theory, you can make 100% on a short but your losses are uncapped. In contrast, on a long you can lose 100% but your gains are uncapped.

In addition, because of inflation in a fiat money regime, prices in general and the market as well trend higher over the long term on a nominal basis. That is, nominal prices will go up even if your purchasing power (real prices) doesn’t due to inflation. And the game is played with nominal prices. Don’t underestimate this factor. For all these reasons, the deck is stacked against the bear.

It is only recently that I have learned to counteract my bearish bias and aligned my portfolios with the long term upward trend. If your portfolio is suffering from your bearish bias, I encourage you to become self aware. Unshackle your portfolio and set it free. While there are no guarantees that the market will always go up in the long term, for all the reasons outlined in this blog you should have a bullish bias.