Lots of advice, but it is focused on lackluster/tepid expectations. It seems 2015’s negative surprises and poor performance set the tone for 2016’s outlooks. Even articles that include “bull market” in their titles restate what went wrong and end up asking the question of whether stocks can rise again. The only certainties offered are that the U.S. stock market will be volatile and that it will not generate a double-digit return in 2016. A good example is the AP article, “Expect less and buy antacid: 2016 investment forecasts.”

Investing is becoming more of a grind. Expect it to stay that way.

Analysts, mutual-fund managers and other forecasters are telling investors to expect lower returns from stocks and bonds in 2016 than in past years. They’re also predicting more severe swings in prices. Remember that 10 percent drop for stocks that freaked investors out in August? It likely won’t take another four years for the next one.

That brings us to what is missing from most advice: Optimism and “cool” stocks. When attitudes and advice center in one area, taking a contrarian stance by focusing on overlooked or dismissed areas can often reward investors with lower risk and/or higher returns.

Disclosure: Author is fully invested in U.S. stocks and actively managed U.S. stock funds. Holdings include the five stocks mentioned below.

Contrarian investing using optimism

Contrarian investing is often linked to troubled, deeply discounted stocks. However, “contrarian” simply means going against a popular trend. Thus, selling a popular investment or buying stocks that others are ignoring are also examples of contrarian investing.

So, what is so special about adopting an optimistic attitude? Because it means having confidence in the future, and that shifts the investing strategy to future growth. Are the uncertainties and reversals revealed last year still at work? Of course. However, everybody knows about them, so today’s stock prices fully reflect that information. What is not yet included in the pricing is the expectation that today’s problems will be corrected by tomorrow’s actions. Instead, the 2016 advice says or implies that, because the solutions are not currently visible, we should not count on them occurring. This “wait until the dust settles” procrastination is the surest way of missing out on the largest, safest returns from stock investing. When the good news is obvious, prices are already up.

And now to that “cool” portfolio

If we are going to be optimistic, then we can focus on the companies that delight. These are the companies that have something special, unique and desirable to offer. Happily, they are obvious, so it is just a matter of having the confidence that their futures can be bright. To succeed, investors can focus on what they know and like, or they can use advisers or actively managed funds to perform the selection. (Personally, I prefer a combination of my own choices and funds managed by organizations in which I have confidence.)

Below are my five favorite “cool” companies. Their shared characteristics are leading developers of top end products and services that can support high pricing and profitability. In addition, the companies are well structured and managed to succeed in evolving growth areas.

1. Apple AAPL -6.22%
2. Goldman Sachs Group GS +0.65%
3. Starbucks SBUX -1.40%
4. Time Warner TWX -0.14%
5. Walt Disney DIS +0.37%

The bottom line

The current market environment has investors and advisers focusing on risk, uncertainties and low expectations. It is this caution that gives us the right and incentive to be optimistic and confident, buying leading companies for the brighter days ahead.

The glass is always half-full, right? That is the classic answer to the age old question if a half a glass of water is half full or half empty. It labels you as a optimist, which is not a bad thing.

I think that the glass is entirely full. If you really think about it, the glass is half-full of water AND half-full of air. Hence, the whole glass is full with something. It is definitely not the standard answer, but it is the one that I relate the most too.

Along with this cliche, I am also a fan of every cloud as a silver lining, when life gives you lemons you make lemonade, andthings will always get better. I try to live my life by these cliches that have been said so many things that some people believe that they are starting to lose their meaning. For me, these words have been a lifeline, something to constantly remind myself that living a happy life is possible. So, I try to incorporate optimism into every aspect of my life. I have also found a lot of optimism creeping into my reading life. 

To find out how I have been using optimism as a tool to improve my reading life, see the original post.

Polly! by Stephen Goldin

John Crum discusses Wells Fargo Equipment Finance’s Second-Half 2014 Construction Executive Survey, which reveals broad-based increases in construction activity compared to a year ago. More executives said they are seeing “somewhat higher” or “much higher” construction activity than at any time during the past five years.

Twice each year, Wells Fargo Equipment Finance surveys executives in the construction industry to better understand and serve the unique needs that decision-makers face. In our Second-Half 2014 Construction Executive Survey we found more evidence that the construction industry has much to be optimistic about. Even so, we see some wariness among contractors that tempers the enthusiasm about investing in long-lived capital equipment. The general optimism and other positive indicators lead us to expect another solid year for the U.S. construction equipment market in 2015 with a continuation of the trend toward equipment rental.

Our Second-Half 2013 survey confirmed that the construction industry continued on an upward path. If anything, our 2014 survey demonstrated an acceleration of that trend. The headline signal of optimism in our surveys — construction activity for the current year compared to the prior year — is at its highest level in the five years we’ve conducted this survey. Fewer executives see a contraction of activity than in the previous year, and the jump in the number of executives who see “much higher” activity levels is encouraging. About seven in 10 respondents (70.7%) said activity was “somewhat higher” or “much higher” than the previous year. In 2013, that percentage was 57.7%, and in 2012 it was 47.8%. In addition, only 9.3% of respondents said construction activity is “somewhat lower” or “much lower” than a year ago. In 2013, that percentage was 15.5% and 18.4% in 2012. Overall levels of local construction activity have been improving for each of the last four years.

Housing Builds Slowly

Residential construction continues to make modest improvements. In spite of seasonal variations and some month-to-month volatility, we continue to see good year-over-year comparisons. And the forecast for housing — more multi-family than residential — demonstrates some optimism that a growing economy will need to accommodate a continued expansion in residential living space. In the most recent U.S. Census report on construction spending we see consistent year-over-year growth in residential construction. We expect housing to continue growing modestly in 2015 and 2016, which should prompt additional equipment acquisition. 

Employment Prospects Improving

The mood about hiring new employees in the construction industry has definitely improved compared to two years ago, although our survey didn’t find a great deal of difference compared to 2013. Within six months of taking our survey in August 2014, 56.4% of executives said they expected to hire “a few” or “many” new employees. In 2013, that number was 60.4%. However, in 2012 only 41% of executives said they expected to make significant moves to hire new employees. We are encouraged by the fact that only 2.3% of executives said they “will have to reduce” their workforce within the next six months.

Federal data continue to show steady improvements in hiring generally and for the construction industry specifically. The unemployment rate now sits below 6% and the U.S. economy has shown an ability to generate significant numbers of jobs over the last six quarters. Through September, the construction industry has added 230,000 jobs so far this year.

More Equipment Rental and Higher Rental Rates

The resurgence of the equipment rental industry over the last few years continues to be one of the most memorable hallmarks of this construction cycle. In what contractors have deemed to be a relatively uncertain construction environment in the years since the recession, they have become more frequent renters of heavy equipment than in prior years.

We see a marked increase in equipment rental rates in 2014 compared to 2013, which begs the question of whether rates are starting to catch up with the steadily increasing demand for equipment. We’ve found some regional variation in the trend but believe the tendency towards higher rental rates is firm. For example, in one visit to an equipment distributor we found that renting was almost as economical as buying on a monthly cash outflow basis. In other areas of the country, anecdotal evidence confirms that the rise in rental rates is giving some contractors reason to consider more equipment purchases so they can save on monthly payments.

In our 2013 survey, 44.6% of respondents saw “somewhat higher” or “much higher” rental rates compared to the year before. This year, 58.7% said they see rental rate increases compared to 2013 — easily the highest percentage since we’ve surveyed on that question. About four in 10 respondents (38.6%) said equipment rental rates were “about the same” as the year prior — the lowest in the last four years. Similar to recent past years, very few respondents are reporting declines in rental rates compared to the prior year. Distributors said they are renting out more equipment to end users in 2014 than is typical. Almost two-thirds (64%) said they are renting out “somewhat more” or “much more” than they usually do, compared to 47.1% in 2013 and 47.8% in 2012. Only 6% in 2014 said they are renting out less equipment than they usually do, compared with 17.9% in 2013.

Contractors Hesitant About Rental Conversions

At least in the near term, we believe distributors may not be able to count on contractors buying the equipment they have been renting. Industry executives acknowledge the ongoing increase in construction activity and we see signs of overall economic improvement, but contractors appear uncommitted about making long-term investments in heavy yellow iron. About six in 10 contractors (61.3%) said they planned to purchase less than 25% of the equipment they are currently renting. About one in five contractors (20.4%) said they are uncertain what percentage of equipment they will change over from a rental to an owned asset. We attribute this to a general wariness about the sustainability of economic growth over a sufficiently long period of time to support an investment in heavy equipment.

How to Finance the Highway Trust Fund

One topic of interest with contractors and dealers is federal funding for infrastructure projects. We surveyed executives to better understand their views about long-term funding options and how multi-year funding legislation might influence confidence about the industry. Although Wells Fargo takes no official position on these legislative matters, we do watch them closely to better understand the competitive landscape and gauge confidence for long-term trends. We found that almost nine in 10 (87.2%) construction industry executives anticipate a highly positive effect from a multi-year solution for the federal Highway Trust Fund. When presented with an array of funding options, the executives who expressed an opinion overwhelmingly favored use-based solutions. Each of the top three choices — gas tax (60.2%), mileage driven (19.9%) and toll-ways (13.4%) — place the burden of paying for infrastructure resources on those who use those resources.

New Equipment Emission Standards

As more Tier IV equipment makes its way into the marketplace we also wanted to better understand what executives are experiencing with respect to performance and price. More than three-fourths (76.9%) of construction executives said that the new Tier IV equipment is performing as well as or better than previous generations of equipment. This is welcome news because contractors also agreed that the price point for this new equipment is much higher than what had been anticipated. Our conversations with contractors and dealers show a 10% to 12% price increase compared to equipment of previous generations.

Conclusion

When looking at where the construction industry has come since 2010 and 2011, we are impressed by the remarkable improvement in the levels of construction activity and other measures of industry health. Companies appear more willing to commit to hiring new employees, they report greater levels of construction activity and there has been a general increase in construction equipment use whether through purchase or rental. Interestingly, the potential hazards to domestic growth that we feared in previous years seem much less threatening as we close out 2014. As shown by the second quarter and third quarter GDP reports, the underlying fundamentals of the U.S. economy have been firming up and all indications are that it will continue to grow through 2015 and 2016. All of these factors bode well for the construction equipment industry and lead us to believe that there will be strong opportunities in the construction market for the year ahead.

John Crum has worked in the construction equipment finance industry for the past 20 years, holding a variety of positions in sales and credit management. He joined Wells Fargo Equipment Finance in May 2006 and currently serves as national sales manager of its Construction Group, overseeing originations activities in the U.S. and Canada.