It will come as no surprise to this audience that there are a few things that worry me. I often write about problems in the markets. Subprime mortgage contagion, earnings shortfalls, a slowdown in consumer spending are all on my worry list.

But I am not just your average amateur worrier. I am a professional worrier. I get paid to worry. For a professional, worrying is an art form. The amateur worrier spends way too much time worrying about events that are likely to happen. A true professional worries about the unlikely events that create the most problems. It is the things we are not worried about which can cause us the most harm.

For instance, I am not worried that the subprime mortgage debacle might cause a recession. I think it will bring us a garden-variety recession. I have lived through five recessions, a few market crashes, and other economic upheavals in my adult life and expect to live through that many more problems in the future. My portfolio and business are built to withstand a recession or two, so I don't worry about it.

What worries me about the problems in the mortgage market is the possibility, however small, that we will see a credit liquidity crunch that will bring about more than a simple recession. I think it unlikely, but I can see a path that makes it possible. The capital ratio at US banks is at its lowest level since 2001, and with more losses coming from mortgage and consumer lending, it is possible that banks will tighten up lending practices. We are already seeing some anecdotal evidence of tighter lending standards and a reduction in consumer lending. Enough to throw us into a serious recession? While unlikely, it is something to pay attention to, because that would change things and maybe require some portfolio adjustments, as well as bring new opportunities.

In what may seem like a contradiction, a professional worrier must be an optimist. Spending too much of your time worrying can lead to inaction and not getting into the fray. There are two types of people who lose in today's markets. First, there are those who are pessimists and do not get into any investments at all, staying in cash. That is a strategy that is guaranteed to lose you buying power, as inflation and taxes eat into your portfolio.

Second, there are the unabashed bulls that chase the latest investment fad, often when it is coming to an end. $90 billion dollars went into mutual funds in January of 2000. I am told that 80% went into Janus funds, some of which went down by 75% or more. Sometimes they do ring a bell.

The correct position is cautious optimism. At the risk of repeating myself, the way to be in the top 10% of all investors in 2017 is to simply be above average each and every year for the next ten years. That is harder than it sounds. Many investors create portfolios based on historical data that is unlikely to repeat, or choose investments which may well be outstanding in most years but have some awful years as well. The enemy of compounding is losing. You can and should be cautious, but you need to be in the game if you are going to be above average.

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