Investor Walls of Worry, Built on Shaky Foundations


By Alan Steel

Once upon a time, when televisions were large square boxes that a family of four could comfortably sit round and eat dinner on, and programming after midnight consisted of white static fuzz on all three available channels (until about 6am), we lived in blissful ignorance of things like infomercials, the Kardashians and non-stop news.

Yep, those were the days.

Of course, technology changed all of that.

Now you couldn’t balance a 50 pence piece on the flat screen in my “Ibiza room”, and I’ve got 300 channels of shit on the TV to choose from…24/7.

The Problem with Choice

So did more choice bring us more quality with more options, or just more noise, unfettered opinion, and negativity?

Well, I’m going to have to vote for the latter on this one, at least as it concerns investing your money.

And it’s interesting how having all of this immediate access to all possible facts is almost the same as having none at all.

Equally that level of choice, and the confusion that follows for most, opens itself up to bad interpretations from many an animal spirit out there chasing newsletter subscriptions and the most eyeballs.

The Lizard

And we as humans, at least those who huddled together and survived their moments millions of years ago on the Savannah grasslands, brought with them through the evolutionary gene pool, a switch at the centre of our heads called your Amygdala (Lizard Brain).

It’s the adrenaline-fuelled button that, once pushed, leaves us more inclined towards flight than fight. And while that instinct served us well when we wore the skins of the animals we ate (hmmm, maybe that one has changed all that much), the multitude of options out there still leaves us easy victims to the sounds of the wolves who howl the loudest warnings.

“Now you couldn’t balance a 50 pence piece on the flat screen in my ‘Ibiza room’, and I’ve got 300 channels of shit on the TV to choose from…24/7.”

So who be these animals, and are their howlings of impending bear market apocalypses correct and useful to us?

Well, in the investing space, going all the way back to the post-Millennium wreckage of the boom and bust of 2000/02, these folks have names like Mauldin, Roubini and Edwards; born of earlier bear market elder tribesman like Joseph Granville and Ravi Batra.

So, were they right?

Well let’s look back briefly to 2009, right after the wreckage of that market crash, and see.

Slome Says…

In the words of Wade Slome from his wonderful blog, Investing Caffeine, he writes:

 “I fondly look back on my articles from 2009, and 2010 when I profiled schlocks like Peter Schiff (see Emperor Schiff Has No Clothes) who recklessly peddled catastrophe to the masses. I guess Schiff didn’t do so well when he called for the NASDAQ to collapse to 500 (5,660 today) and the Dow to reach 2,000 (20,000 today).

“Or how about the great forecaster John Mauldin who also piled onto death and destruction near the bottom in 2009 (see The Man Who Cries Wolf ). Here’s what Mauldin had to say:

“All in all, the next few years are going to be a very difficult environment for corporate earnings. To think we are headed back to the halcyon years of 2004-06 is not very realistic. And if you expect a major bull market to develop in this climate, you are not paying attention.” … “We are going to pay for that with a likely dip back into a recession.”

“At S&P 856 (2,295 today) Mauldin added:

“This rally has all the earmarks of a major short squeeze…When the short squeeze is over, the buying will stop and the market will drop. Remember, it takes buying and lot of it to move a market up but only a lack of buying to create a bear market.”

“Nouriel Roubini a.k.a. “Dr Doom” was another talking head who plastered the airwaves with negativity after the 2008-2009 financial crisis that I also profiled (see Pinning Down Roubini). For example, in early 2009, here’s what Roubini said:

“We are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst.”

“For long-term investors, they understand the never-ending doom and gloom headlines are meaningless noise. Legendary investor Peter Lynch pointed on on numerous occasions:

If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”

The Missing Euphoria

Alan here – Now, you might like to know that in the US, bearish sentiment (as measured by the AAII sentiment numbers ) is today exactly the same as it was in March 2009…after 8 years of a bull market.

Remember that it’s euphoria we should be worrying about, and there’s little sign of that thanks to all the noise and our evolutionary response to it.

It makes you wonder if maybe we weren’t a bit better off, in investing terms, back in the days before the UHF band began to flourish and there was just one communications satellite in the thermosphere?

Maybes yes and maybes no.

What we do know with some certainty though is that we should always confront those fears we hear about with facts. Just because it howls doesn’t mean it’s a wolf.

And it’s that knowledge, that questioning process, that allows us to climb that Wall of Worry towards wealth creation.

Just remember to check things out for yourself.

Then get some good advice.

Because after all, it’s your money.

Alan Steel, Chairman, Alan Steel Asset Management

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