I am told by my great friends in media – “if it bleeds, it leads.”.
I would be so kind as to add one little snippet to that as it relates to financial and investment reporting:
“If it, in any manner, can be devised in a way to scare the living crap out of the largest part of the audience, it is all we will talk about – until a bigger monster arrives.”
It’s the process of worrying ourselves sick. The process of worst-casing everything that moves. The process of defining outcomes in the very worst possible manner – even if every single thing goes against us.
Since the terrible events of 9/11, coming in the middle of a tech bubble crash at the time, the overwhelming tendency has been to always assume the worst.
This is all sort of weird, because after hundreds of morning notes depicting same and highlighting the other side of the coin, the worst rarely plays out – if ever.
When did the worst thing happen? Think about it? Could it really have never been worse? Was it really the worst it has ever been.
Oddly…no. Not even close. Not remotely.
In fact, even in worst-case scenarios, the financial markets have tended to stabilize comparatively quickly if one really thinks about it.
I read a good piece earlier in the week. The author also noted the “trend” in catastrophic-izing everything. Three excellent and particularly scary instances were highlighted:
From 1973 through 1974, the S&P 500 Index lost a total of 37%. Over the next five years, it returned almost 15% per year. And over 25 years, it returned more than 17% per year.
From April 2000 through February 2003, the S&P 500 Index lost an even greater total – more than 41%. Then, from March 2003 through October 2007, the index returned more than 100%, providing an annualized return of more than 16%.
From November 2007 through February 2009, the S&P 500 Index lost a still-greater total – more than 46%. Then, from March 2009 through November 2015, the index returned 227%, or more than 19% per year.
The Bottom Line
There’s a gigantic bubble in the Business of Doom.
Let’s face it man, saying the world is ending for very stretched reason number 6,782,402,197,221 gets readers, subscribers and traffic. It gets far more attention than saying everything is going to generally work out ok, like it has for the past several hundred years.
I suspect our need to stay “on guard” or outright terrified just under the surface comes from the boom/bust mental cycle of the last 15 years. The massive roller-coaster rides and unending video montages of our terrible existence has surely led to an irrational impact on the underlying psychology of the crowd.
Which is a shame really. Why?
Simple: these perennial predictors of doom seem to spend a lot more time being wrong than right, but disproportionately fill the airwaves.
It’s probably our tendency towards loss aversion, but despite vast evidence of this bias in the behavioral finance space on this topic, we just can’t seem to break free from our obsession with the end of the financial world…
A BIG BIG Picture
I have used these two charts below before but they seem fitting for the topic:
Check them out when you are free over the weekend.
The top chart shows you (with red dots) that we have made it through a myriad of really bad things over the last 200++ years of market action. The one lone blue dot? Well, it is where we are now.
The Mind Game?
No one knows the future. No one knew all those other times we were equally petrified that the world was going on along a pathway much different from what we feared at the time.
If you had known, you would have consistently bet the ranch during all those other times over the last couple hundred years when the world was ending (see those red dots again).
And you would have been treated well for it – as an investor – not a trader.
The second charts shows a more close up view – just the last 60 years or so. from the Eisenhower Recession in ’58 up through the lost decade of the 70’s, the test of the secular bull breakout back in late ’83, the “collapse” in October ’87, the banking collapse and real estate losses of the early 90’s recession, the Clinton years “double dip fears”, the Russian currency crisis in ’98, the bear market lows of tech ini 2003 and the lows of the financial crisis of 2009.
Yet, here we are again – afraid, drinking up all the doomsayers have to offer and ignoring anything to the contrary.
Ah well. Oh, the green dots on the second chart you might be asking?
Those were the times that the masses felt good about stocks and the future. In fact, they felt great.
And that one lone little purple dot all by itself way up in the right hand corner of the chart?
Oh yes…well that is where we are right now…once again drinking in the anticipation of doom.
Have a good weekend…cheer up, hold your nose and build on corrections.
Our very best days are ahead.