Investor Points of Few – The Stock Market Magic Show

history of us bull and bear markets since 1926

By Alan Steel

We shouldn’t wonder why celebrity analysts who regularly call for market tops, when indexes and values are rising, are worshipped by the investor herd as if they had magical powers.

And that’s because they actually do.

You see, from my perspective I’ve always thought that the best part about any magician’s act is how well they maintain the audience’s level of belief. It’s all about timing and how impressions are delivered in each moment; and it doesn’t matter whether the trick can be repeated sometime thereafter off the stage, without the dark curtains, mood lighting and specific devices. The good illusionists keep you in the moment and make you believe that ‘the now’ is all that matters; the high ladders, shiny cages, fiery rings and often over-dramatized movements that create the spectacle your  mind is being prepared to experience and accept.

The audience sits in the darkness, adrenaline slowly pumping into their engorging lizard brains – those that trigger our flight or fight response – that evolution has chosen to nestle deep in the centre of our heads. Their pulses fire more quickly as the scale of what’s about to happen eludes the realms of the possible and approaches the ‘moment of truth’ in front of them.

And then it happens; the illusionist (or the assistant) escapes a certain fiery end, multiple stab wounds, a chained up drowning or manages to somehow defy the laws of gravity in startling fashion.

But it isn’t true. It’s deception, smoke and mirrors and the willingness of the audience to hand the magician their belief.   

In fact, the whole process reminds me of the nightly news, which I less than affectionately refer to as ‘The Bad Noise at 10.’

There, sat in the mid-level darkness of livings rooms across the world, millions of eyeballs widen and pulses quicken as the scope and scale of what’s deemed a dour global economic spectacle comes to light: roll in the high ladders of investor altitude sickness as the evening’s illusionists (read: news anchors) tell of markets doomed to fail; watch for the shiny cages of bond funds, ETFs, Index Trackers and cash options appear on stage as safe havens; see the bond trader celebrity analysts make fiery rings of stock market records as they over-dramatize that it will all end badly.

But the actual trick never happens. They just repeat the same build up every night with a slightly different storyline and folks keep paying for their SKY TV. Eight years since we saw the markets turn the corner from 2008/09 recession, half of those in recovery mode and half in secular bull market mode. and the main indexes keep rising. And all the while the magicians suspend belief with cheap tricks that play havoc with your adrenaline levels and your investment performance. 

Want proof? Look up!

One of my recent favourite charts (above) comes from Barry Ritholtz over at The Big Picture 

It shows how often US stock markets have been in bull market mode, and how often they are bears, over the last 90 years. 

The difference is stark. And it’s not a trick. It works outside of the lit stages of theatres and doesn’t require a ticket.

Think about whether you’re sitting in the dark following an illusion the next time you make an investment decision.

After all, it’s your money.

Alan Steel, Chairman, Alan Steel Asset Management

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