Why You Should Be Optimistic in 2025

"You're starting at a good time," my new boss told me...

"Everyone thought the world was ending last year," he continued. "But it didn't. And now, there are opportunities everywhere."

At the time, I could hardly explain the difference between a stock and a bond. So I dumbly nodded my head, trying to soak up as much knowledge as I could.

It was the summer of 2010, a little more than a year after the stock market hit bottom. I had just come on board at Stansberry Research. And while I hardly realized it, it was an incredible time for investors.

The worst of the crisis was over. The economy had stabilized... sentiment was slowly improving... and stock prices were rising. It was the perfect formula.

And if you'd bought back then and held on, you would've had the chance to make roughly five times your money in the years since.

Still, I quickly learned that the optimistic view wasn't the general consensus. Most folks back then were still darn scared... They saw problems, not opportunities.

It's a lot like the situation today.

As I'll explain, this market is different from what I saw back then. But once again, people are scared... and there are opportunities everywhere.

One of the folks sounding the alarm bells in 2010 was legendary investor Jeremy Grantham...

Grantham is the co-founder of GMO, a Boston-based investment-management firm he launched in 1977. He has a storied career. And he has built a reputation as a preeminent scholar of investment bubbles. When Grantham speaks, people listen.

I remember watching an interview with Grantham in those early days of my career. He explained, clearly and logically, that U.S. stocks were still expensive... and why that meant long-term investors should expect effectively no return over the next few years.

You see, Grantham lives and dies by the idea of "reversion to mean." That means an expensive market won't stay that way for long. Valuations will fall back to normal, historical levels, usually within five to seven years.

Based on that idea, GMO puts out seven-year forecasts for most major global asset classes. And at the end of 2010, things didn't look good...

GMO's seven-year forecast for U.S. large-cap stocks was a paltry 0.4% rise per year, excluding 2.5% expected inflation. In short, Grantham's firm thought that U.S. stocks would be dead money... for years.

We all know what actually happened. U.S. stocks soared and soared... and then soared some more.

By the end of 2017, U.S. large-cap stocks were up more than 12% per year after inflation. GMO was dead wrong.

My boss wasn't surprised. He had explained why that would likely be the case in that conversation all those years ago.

His explanation went something like this...

Those long-term forecasts are fun to think about. But they ignore what investors care about right now. If you want to make money over the next year, you need to understand what folks think now, and what they'll think in 12 months.

Hearing that, then watching it play out in real time, helped shape my investment philosophy. It's why I've been so bullish in recent years, while most folks were looking for reasons to sell.

It's also why I expect GMO's recent forecast – once again – to be dead wrong...

Last April, GMO put out an updated seven-year forecast. This time, the firm expects U.S. large-cap stocks to fall by 4.9% a year.

That's an enormously bearish call. But these experts believe U.S. stocks are too expensive, and that valuations will crash from here.

It's the same classic idea... a reversion to the mean.

The problem is, betting valuations will fall just because they're high is a foolish move. Similarly, expecting a bad year for stocks just because we've had a few good years isn't smart, either.

We just finished a second incredible year for stocks. The combined returns for 2023 and 2024 were some of the best in history. But because 2024 ended with a bit of volatility, everyone seems ready to throw in the towel.

You might agree. You might assume it makes sense to be a pessimist this year... But I urge you not to make that mistake.

Negative sentiment is a good thing for markets. It means prices can move higher. Plus, despite the recent volatility, we're still in the middle of a powerful uptrend. And combining the two is a recipe for higher prices.

Today's market is drastically different from the one I stepped into in 2010. But it's similar in one crucial way...

There are opportunities everywhere.

I hope you take an optimistic view as we enter 2025. There's a lot to be excited about... and investors have plenty of opportunities ahead.

The first step is to stop focusing on the negatives. They'll always be there. But I assure you, they rarely matter.

Instead, stay positive. Stay long. And look to take advantage of what the market gives you this year.

Good investing,

Brett Eversole