Investor Points of Few – Media, Mugs and the Markets

“If the stock market was a doctor’s patient, over the last decade, bloggers, pundits, talking heads, and pontificators have been ignoring the improving, healthy patient’s vital signs, while endlessly predicting the death of the resilient stock market.” Wade Slome, Investing Caffeine

By Alan Steel

At our very core we’re social animals.

And as such we all have an inherent need to want to fit in with the rest of the crowd.

Now, in and of itself that’s probably a good thing…until, that is, the need to do so manifests itself in our investment thinking.

That’s when the trouble starts; because aligning yourself with the crowd is as financially debilitating to us now as it was crucial to our survival millions of years ago when we roamed the Savannah grasslands and communicated in a series of clicks, grunts and whistles (like politicians at an expense budget review).


But things change, and we have to adapt to those changes. Jings, even Newton’s Third Law of Physics now has a more modern tech-driven addendum that reads: “For every action there is an equal and opposite reaction…and a social media overreaction.”

What drives us towards one another for reassurance and safety in times of real or imagined fears is mainly a chemical reaction that happens inside our heads – when stress hormones like adrenaline and cortisol flood our systems.

That’s when the Lizard Brain at the very centre of our skulls sets the flashing red light of the amygdala spinning and wailing like the warning of an approaching fire engine.

Hijacking Common Sense

That reaction then tends to quickly hijack our ability to think clearly, regardless of whether the Lizard Brain’s response is being driven by a barrage of scary sounding headlines, and charts dripping with “red ink”, or there’s actually a tiger hiding in them thar’ bushes.

Unfortunately, it’s easy to get drawn in to believing and responding to the consensus of opinion, like the markets (US) are overpriced, overdue for a correction and now sit perilously close on the edge of disaster.

Well heck, why ruin a good story with the facts, eh?

It seems we haven’t moved much further forward in terms of a collective view of the stock markets since about March 2009.

The Truth About 2008

For clarity on what actually happened and why, “Funny or Die” correspondent Jeremy Burns sought to teach investors and the general public alike why the world had suddenly fallen apart beneath the weight of lax lending rules, and compared the banking sector’s mortgage and lending approach to, “betting on an arthritic three-legged horse.”

All-Time Market Highs

But the world has changed a lot since then.

The major stock markets sit at or near all-time record highs.

In the words of Wade Slome from Investing Caffeine, “…as we enter year nine of the current bull market, I remain amazed and amused at the brazen disregard for important basic economic concepts like supply & demand, interest rates, and rising profits.

“However, let’s be clear – it has not been all hearts and flowers for stocks – there have been numerous -10%, -15%, and -20% corrections since the Financial Crisis nine years ago. Those corrections included the Flash Crash, debt downgrade, Arab Spring, sequestration, Taper Tantrum, Iranian Nuclear Threat, Ukrainian-Crimea annexation, Ebola, Paris/San Bernardino Terrorist Attacks, multiple European & Chinese slowdowns and more.

“Despite the avalanche of headlines and volatility, we all know the net result of these events – a more than tripling of stock prices (+259%) from March 2009 to new all-time record highs. With the incessant stream of negative news, how could prices appreciate so dramatically?”

The Dour & The Enduring

Perhaps instead of always erring towards the most dour conclusions, we might try to consider that the markets might be much stronger and resilient than we think – having endured and risen through all of those events noted above.

Stock prices don’t care about headlines.

“Unfortunately, it’s easy to get drawn in to believing and responding to the consensus of opinion, like the markets (US) are overpriced, overdue for a correction and now sit perilously close on the edge of disaster. Well heck, why ruin a good story with the facts, eh?”

Of note, the eponymous head of renowned Naples-based (Florida, that is) research house Ned Davis recently changed his view on European market exposure, moving up from Marketweight to Overweight – it wasn’t that long ago that he had it down as Underweight.

Ned himself thinks negative sentiment re: Brexit is well overdone and the firm is reporting widening progress in most markets , particularly Asia and emerging markets.

Missing: Recession Indicators

And, a la one of Warren Buffett’s favourite indicators, all 50-day moving averages are above the 200 day. Joe Kalish (also from Ned Davis) reports no sign of recession in the US or elsewhere, along with continuing low inflation and low interest rates.

SO, with the idea of “herd avoidance” in mind, maybe we should start focusing on those places where the investor crowd ISN’T.

Inflows in the US are piling into Passives at the expense of active management.

And the average length of holding in the SPY ETF (S&P 500 tracking ETF), which is meant to be a long term holding, is now only 15.4 days.

Nice to see how the average investor is so patient, eh?

So, don’t be average and follow the crowd. Get some advice and get away from the crowd.

After all, it’s your money. 

Alan Steel, Chairman, Alan Steel Asset Management


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