Stock Market Crash

As the incessant media chatter about impending ‘terrible events’ reaches deafening levels, have we gone deaf to the voices of common sense telling us a very different story?

While there are far too many metrics to offer up here in support of that conclusion, the simple truth is that life, for most of us, has never been better than it is today:

  • We’ve never had this many jobs
  • We have never had this much collective income or net worth paid to consumers
  • We have never had this many more job openings than people to fill them, and
  • America’s corporate world has never collectively seen these levels of income and profit metrics.

In short, the game is just getting started.

Bizarre, Eh?

Now, against the back-drop of the above the emotional and fear-based view that so many folks out there still have remains a stark reminder that 2008-2009 is still very fresh in the minds of the masses.

Yet we are almost a decade removed from what’s driving those beliefs.

Mood Chart1

Ok, so maybe it's my age or the number of years I’ve been watching this data, but I find it shocking that most of the investor audience remains deeply uncomfortable with taking any risk in the market while the markets "struggle" near all-time highs.

And sure, any goal you have in wealth building over time carries risk, as does any investment with even a remote expectation of return above 0%.

If you get that then the word "volatility" will no longer make you nervous.

Just look how many readings (the connected blue line in the chart above) are higher than the current levels (the magenta-coloured horizontal line). 

And note how the current readings are the same as they were in the early weeks just past the March 2009 lows; when the Dow Jones Industrial Average was still below 8,000.

US Jobs and Small Business?

Things have never been better either. 

I know that sounds too good to be true, but that type of worry comes when everyone and their brother finally believe in stocks again.

And there are still over 10 trillion dollar’s worth of reasons sitting in the bank to suggest they don't:

Mood Chart2

Have a look at the expanding job openings pictured in the above chart even as small businesses continues to ratchet up their hiring plans.

Got Robots?

You’d better have, because in another few years (or less) we will need them.

Mood Chart3

Forget the News...

Why?

Well, Morgan Housel did a great piece years ago which I’ve highlighted for you below as a reminder of how quickly we can be easily consumed by some forecast or other; especially if it’s a scary one.

As an example let’s try a bit of time travel.

Go back to the day before the Great Depression begins - one of the most important days in market history.

If you dig through the New York Times that day that the entirety of stock market coverage is summarized on one page, a third of which is owned by a Chanel shoe ad.

Mood Chart4

There’s nothing at all in there to suggest we were headed towards those coming years of difficulty. 

Add that to the 2008-2009 misses and what you get is a new generation of "experts" making sure they don't miss the next one.

This highlights the oft-referenced joke that "economists have successfully forecasted 16 of the last 3 recessions."

Human Emotion - Not Money

Over the years, we have mentioned the psychology and emotion of the crowd very often. 

Why? 

Well, investing is not the study of finance. It’s the study of how humans behave with money. And when you come to realize that finance is the study of human behaviour you see that it incorporates the lessons and laws from all kinds of different fields, like psychology, sociology, statistics, biology, history and politics.

The Rule of Thumb

If it looks into how people behave in groups and respond to incentives, it’ll teach you something about investing.

And old news is the best guide on how to treat current news. In fact, old news is very enlightening. As Morgan put it, "It is the most unfiltered historian, offering a view of the world that suffers from no historian’s subjective editing of what’s important."

The history of old news teaches us that: Forecasting markets and economies is nearly impossible; people will never stop believing in forecasts; and the biggest news stories in hindsight are the ones no one was talking about with foresight.

It’s an important framework to remember when reading today’s news.

Old news also shows that most of what seemed like important news at the time was quickly forgotten.

Every piece of financial news you read should be filtered by asking yourself: "Will this really still matter in a year?  Five years?  Ten years?”

And, "Will I care?"

Emotional and mental games are always at work. In the process, people play different games - all in the same "market." A long-term investor sees a headline about selling stocks before earnings and shakes his head in disbelief.

A trader reads an article about "Stocks for the Long Run" and thinks people everywhere are oblivious to the risks right at this moment.

And momentum investors think they’re both missing it.

Meanwhile, bond investors think all three are crazy.

They’re all just different players all in the same game. But what’s vital is that you don’t take your cues or build plans or actions from someone playing or projecting a different game. 

A perspective can be highly relevant to one person and irrelevant to another if those people have different time horizons or different goals.

And when you find yourself fearful, concerned or worried that you’re missing something or missing out, ask yourself what game they’re playing and if it’s the same as yours.

Mike_williams
Author
Mike Williams
Founder and Managing Partner