Posts filed under “Cognitive Foibles”
Hey, today we are having lunch with the astute Morgan Housel of MF. I have been enjoying his writing for years now — he is my favorite Motley Fool writer.
Here is his very simple explanation for why the end-of-worlders have been wrong, and will continue to be wrong, for most of the future millenia (see chart above).
Housel noted what has occurred over the past 150 year or so. If you allowed the headlines to drive your investments, how would you respond to these events:
• 1.3 million Americans died while fighting nine major wars.
• Four U.S. presidents were assassinated.
• 675,000 Americans died in a single year from a flu pandemic.
• 30 separate natural disasters killed at least 400 Americans each
• 33 recessions lasted a cumulative 48 years.
• The stock market fell more than 10% from a recent high at least 97 times.
• Stocks lost a third of their value at least 12 times.
• Annual inflation exceeded 7% in 20 separate years.
• The words “economic pessimism” appeared in newspapers at least 29,000 times, according to Google.
And despite these horrific headline events, our standard of living increased 20X.
Investing is about objectively playing the odds — not about giving into emotions. This is a perfect example of how short term events can hurt your long term returns — if you allow yourself emotional reactions to them.
Why I’m an Optimist
By Morgan Housel
Motley Fool, June 4, 2013
Back in August of 2011, Gallup decided to do what they do best — which is poll the American public for their thoughts. In this instance, it was their thoughts on investing. The questions asked was simply: What do you think is the best long term investment? Their answers were very instructive: 34% of Americans said…Read More
Ex Post Facto: from or by subsequent action; subsequently; retrospectively; retroactively. From late Latin, literally, from a thing done afterward I want to discuss a problem that exists in the narrative form of market commentary, one that I hinted at last night but did not have the time to fully explore in…Read More