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“The only thing we have to fear is fear itself.” – Franklin D. Roosevelt
I don’t know about you, but I grew up believing that fear is not the way to live life.
Every Sunday I wake up and think about what’s happened in the weeks prior to formulate my thoughts. Often times I will bring up some observations about market behavior. This time, however, rather than talk exclusively about investing, I think it is worth addressing human incentives.
Everyone has an agenda. Many years ago, I co-hosted hour long live shows on financial markets. One time, off-camera, I asked the host of the show how ratings were. The response? “Ratings correlate to the VIX.”
Pause for a moment and think about that statement. “Ratings correlate to the VIX.”
I prodded further, but the commercial break was over and I let it go. My follow-up question was simple: “Does that mean that the media has an incentive to cause fear in the name of ratings?” Of course I never got to utter those words, but I think the answer is obvious. There is a significant incentive for any entity which makes money on ratings or page views to scare you because that is what makes you pay attention. It boils down to our most basic survival instincts regardless of how rational or true the underlying cause of that sentiment is. And that is what pays the bills for content creators.
Taking this a step further, people only hear what they want to hear, and usually what they do hear is some distorted version of reality. No one wants to watch some TV pundit saying something they disagree with, regardless of the merits of the argument being made. There is a high degree of confirmation bias being taken advantage of in our media outlets. This makes sense when you consider that viewers of content will be “stickier” if that content re-affirms one’s existing beliefs. I would note that the media is not the only one who plays this game. Our politicians do as well. Whether you are a Trump or Clinton advocate, both candidates alter the truth in different ways to fit the mood of their constituents, regardless of if that mood is grounded in reality.
Fear sells, gets ratings, and gets votes. But fear is not reality. Everyone feared Brexit and stocks collapsed in 2 days before staging one of the most impressive and fastest rallies in history. Countless page views and discussions were centered around the coming collapse of Emerging Markets for years prior to the Fed hiking, yet 7 months after the Fed raises rates, Emerging Markets are the best performing part of the investable landscape in 2016 (and likely have a long long way to go). All of the analysis done and fear expressed was a waste of time for the receiver of that information, but it sure benefited the creator of it.
Yes, there are legitimate reasons to tactically be afraid, but that time is not every single second of our lives. Yet we gravitate towards rhetoric which makes us think that everything is horrible, and that at any moment some calamity is about to occur. That very thinking does not jive with reality and statistics. It also is actually very damaging to long-term happiness, and long-term wealth generation. So do yourself a favor – whenever you hear an emotional tirade on TV, or read an article about how awful and scary the world is, ask yourself if your personal experiences show that to be the case, and if history says such thinking is justified.
This needs to stop. Fear sells. Don’t always look to buy.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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