When we turn on the TV and listen to the news (or worse the financial news), we are bombarded with dire warnings and stories that show how the world is crumbling. These stories include: The virus has changed life forever, yet people are not wearing masks or taking the virus seriously. The virus has accelerated the decline in shopping malls meaning brick-and-mortar stores are dead, but also malls are crowded with people who aren’t taking seriously the risks of getting sick easily.
So many contradictions, and yet, each article linked above deals in maxims whose only commonality is negativity. Whenever I hear or read these news stories, I cannot help but think about the wise words of the great philosopher Obi-Wan Kenobi: “Only a Sith deals in absolutes.” There are few professions so noble and yet, because of the critical role it holds, so ignobly executed than journalism.
At their best, journalists keep us informed and are a critical part of society ensuring that our governments and people are held accountable. At their worst, they use mass hysteria to drive profits from click-bait worthy stories that feed on the public’s fears or hatred. Whether it’s partisan politics or stock market panic headlines, fear and hatred sell.
While the media exists to inform us, it survives and thrives by generating revenue. Those two concepts are often at odds with one another – an outcome further exacerbated when the media politicizes news to fit a given narrative.
On moderately down days in the market, red lights are flashing all over networks like CNBC. On the truly scary limit-down days like we had in March, you get panic-inducing fear and the most dour predictions imaginable (as well as self-serving profiteering it turns out).
To be fair, there are judicious journalists who seek to educate and protect us all, and many argued not to sell during the Coronavirus-induced panic or encouraged positivity in the face of difficulty during uncertain times. Unfortunately, our collective desire to dwell on the negative strongly outweighs these positive voices. In truth, the media only exacerbates a human flaw. The enticing doomsday prophesies of yesteryear have been replaced by modern day doomscrolling.
The solution? Turn off your TV, stop looking at social media, automate your investments, and figuratively go to sleep for 20 years.
While the effects of this virus are scary from a health and economic perspective, this will pass just like all viruses in human history (including, but certainly not limited to, the Antonine Plague in Ancient Rome, the Bubonic Plague in 14th Century Europe, and more recently, the 1918 Spanish Flu). The human race has been here before, but it’s worth remembering how far we have come since those previous epidemics in our ability to adapt and overcome: from gains in medicine and the rapid advancement of vaccine creation to the ability to work remotely.
We had just invented the car prior to the last pandemic – now a Tesla Model 3 will drive you to work (well, that is when you are not working from home for the foreseeable future). Over time, society improves. Likewise, prudent investments like stocks, bonds and real estate increase in value.
15% of investors sold all of their stock holdings during market sell off earlier this year, thereby locking in losses or triggering hefty capital gains on profits. Both results are disastrous for wealth accumulation. If 15% sold all of their equities, that means that many more likely sold at least some of their stocks. All of these folks lost sight of the powerful data conferred in the chart above, which points out that Bear Markets are scary, but short, and Bull Markets are boring, but powerful.
Investors who sold at or near the bottom lost sight of the powerful compounding aspect to their investments when left untouched – perhaps because they checked their balances or worse watched the news to the point it unsettled them. I won’t pretend know the reasons each investor sold, but whatever their individual reasons, it’s clear their exposure to equities was too high for their risk tolerance. Moreover, I would guess that those who sold will not rush back into the market anytime soon.
While equities produce better returns over time, which is why I generally favor them over assets like bonds and real estate, these latter options are critically important to help wealth accumulators avoid panicking. In fact, one argument levied against real estate and land ownership generally is that it is illiquid and therefore difficult to sell when you “need” to; however, given the propensity for some to panic-sell their equities, boring illiquidity may be one of real property’s greatest strengths.
In the words of a real life Obi-Wan Kenobi, Charlie Munger: “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”