Yes, Hope IS Part of the Equation

Here’s a phrase that pops up all too often whenever and wherever investing is being discussed:

“Hope isn’t part of the equation”

I beg to differ.  In fact, I would go as far as to say that in investing, as in most aspects of life, not only is hope part of the equation, hope is actually the reason for the equation to begin with.

What hedge fund manager, after doing his research and satisfying himself as to the potential risk and reward, doesn’t hope for a favorable outcome when betting big on a position?

What CEO, after conducting his due diligence on a smaller rival company, doesn’t hope for a smooth integration when making a strategic acquisition?

The ability to hope separates us from the animals.  Animals do not have the capacity to hope, they have only learned behavior patterns, not consciousness.  Hope is what allows human beings to make transcendent leaps forward and to break free of the behavior patterns that would otherwise restrict innovation and evolution.

Do we rely primarily or exclusively on hope when making an investment decision?  No, but we aren’t making the decision to begin with if we are not hopeful about the result.  We do not embark on the research or the formulation of a thesis or the determination of the means to express the trade without the first crucial element already in place – the hope that we are right and that we will be rewarded.

The concept of “hope” in the investment realm is too easily dismissed as unscientific, the very mention of the word provokes derision.  Albert Einstein saw hope as going hand in hand with diligence, however.  He once said “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”

Hope is part of the equation, and has inspired every great investment ever made.  It must be accompanied by planning, foresight, deliberate action and flexibility in any investment.  But it must be present, nonetheless.