A Short History of Doubt

"Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering."
- Yoda

From all the disasters we’ve experienced up to now, might that we aspire to awake one day with the knowledge that, when it comes to investing, our emotions can take us down some very unproductive paths.

And, as advisors, let our first instinct be to help clients recognise and remain cognizant of the larger events that drive productive investing, as we protect them from their emotions during tough, scary, and unsettling times.

There has certainly been no shortage of opportunities to exercise these behaviours in the last 30-40 years, during which “the crowd” has been more afraid of and/or concerned about what they think they see ahead based on headlines.

The better approach involves focusing not on the suggestions and predictions about the trying times of the moment, but what history teaches us about what happens AFTERWARDS.

Here’s the latest view on investor sentiment:

The chart above from Bespoke is a view of “Yale's Crash Confidence” reading for individual investors, dating back to 1999.  

Now, while it might seem a bit backwards in the way it presents information, suffice to say that low readings mean that a low number of investors are not worried about a stock market crash. 

In other words, the lower the reading, the higher the worries are about an upcoming market crash.  

Likewise, higher readings suggest an increased level of investor complacency.

And then there’s the indication of what came next following those moments of sentiment when we thought the world was coming to an end:

What we can see is that, while markets may have been choppy during the lower ebbs of – the circled areas – they did not go significantly lower AFTER those fear levels were reached.

So, what does that mean?

Well, in each of those past times, while the negatives were swirling around us all, and the media was pounding predictions into our collective psyche, a new dawn was forming and improvements, development, and innovation took us to better  places. 

The Continuing Theme...

The message then is that we should make clear that the most productive thing and investor can do is pay attention to the underlying currents, rather than the waves making whitecaps on the surface.

And that adapting, overcoming, and making things better are all foundations of history.  

Doubting the arrival of progress for anything more than relatively short stints of time during the shocks themselves has always been a bad bet.