Several times per month I receive an email from a client with a link to some very scary article with a completely captivating headline. Something like: “The man who predicted the 2008 global recession warns investors of a complete financial collapse in 2023” or “Man who predicted Lehman crash makes new warning.” (The latter was an actual article on Yahoo Finance as of the writing of this post.)
I would like to break this down in a couple of ways. The first is that these articles, which suddenly appear in our social media feed, appear to be a sign from God that He is speaking directly to us, giving us a message upon which we must act. The reality is that these websites know much more about you and your predilections than you would ever want to believe. These articles are known as “click bait” and I too have clicked on them once or twice before I figured out what was happening. In fact, the article writer pays to have their “article” promoted and advanced to your feed.
Generally speaking, these writers have no interest in guiding you to smart financial decisions but most certainly are trying to gain subscribers to their newsletters or their “systems” for beating the market. Click and read at your own risk.
The second issue that I would like to bring up is that pessimism is much more titillating and tantalizing than optimism. Here’s an example of two imaginary headlines: Stock Market Plummets on Recession Fears or Market Advances on Upbeat Employment Data. We may be drawn to the first article because it could create insight on how best to handle the upcoming recession. The second article will not garner the same interest as it relates to things moving in a normal direction. If you miss the former, there may be dire consequences while the latter has no consequences on your investment portfolio.
The reality is that neither article should have any bearing on a well-designed long-term strategy. You can’t time the market. Investing is much like planting a garden. If you plant the seeds properly, provide fresh (weed free) soil, and sunlight, nature does the rest. You would never dream of pulling up your carrots to check on their progress mid-way through the summer. Your carrots will go through periods of sudden and slower growth. Think of the immense change very early on before you even see the sprouts of green poking through the earth. It is invisible to us, but we trust in the process and our preparation. Your investment statements come monthly and unless you don’t open the envelopes you know exactly where you stand each month.
Pessimism sounds smarter. It also manages to get more airtime or print space. Say something dramatic about the market or the economy and before you know it there is a microphone in front of you. The optimistic narrative takes a longer time to play out and is so much more boring because the progress happens more gradually and at a slower pace. However, for long term investors we need to be reminded of our time horizons. What happens in the next 6 months, or when the Fed stops raising rates, or how mild the next recession may be is immaterial to where we will be five or ten years from now.
For proof, think about where you are right now relative to where you were ten years ago. Who was the Federal Reserve Chairman then and what did they do to interest rates? How did that impact you? When was the last debt ceiling crisis? Did your portfolio plummet? When was the last time unemployment was over 6%? Did you have a job? None of these are rhetorical questions; they are real. This is my job, and I would be hard pressed to answer all these questions correctly or with any specificity. The reason is that for a proper investment strategy and a time horizon greater than a few months these questions aren’t relevant.
I recently finished reading one of the best financial books that I have read, The Psychology of Money by Morgan Housel. The premise of the book and its 20 concise chapters is that our investment outcomes are based solely on two main factors. Number one, time is the greatest advantage for those seeking to create or grow their wealth and secondly, our behavior is the greatest determinant of our success. I have highlighted my copy of this book more than I have highlighted any book in recent history.
Chapter 17 is titled “The Seduction of Pessimism: Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.” Mr. Housel further defines optimism as the belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. I believe this with every fiber in my being. It is such an honest approach and not in any way Pollyannaish or naïve. There will be setbacks, of course. We are experiencing that right now. We know all about setbacks. I can assure you that the conversation that we have in five years will be about something completely different than what ails us now.
We have no interest in piquing your interest with salacious headlines or click bait. You are our friends, our clients, and we take our role as wealth advisors as seriously as you can imagine. I am committed to helping you navigate through this time of setbacks and help you arrive at your destination. We share our view and our perspective every other Wednesday on our coffee talks. If you (or a friend) ever find you need a dose of reality and help from a guide who is interested in your success, I encourage you to please tune in.
Keep your carrots in the ground, I can assure you they will taste much better if allowed to grow to their full potential.