We’ve got a much bigger collapse coming…I am 100% confident the crisis that we’re going to have will be much worse than the one we had in 2008. - Peter Schiff, 2013
Not only has the GFC scarred many investors across the globe, it has also given rise to the Armageddonists. The dire warnings of such money managers, forecasters, and market-watchers that spread like wildfire have become too frequent since the Global Financial Crisis.
Positive news and good vibes don't sell. Consciously, we all understand and concede this fact, yet subconsciously we are wired in such a way that bad news is given priority to be dealt with. Daniel Kahneman in his book, Thinking Fast and Slow said "By shaving a few hundredths of a second from the time needed to detect a predator, this circuit improves the animal’s odds of living long enough to reproduce”.
Investors are being flooded with information in lightning speed. At the same time, investors are being starved of knowledge. The challenge for investors is to engage their conscious mind to override their subconscious mind. This is not an easy feat. It requires discipline, courage, and little to no emotion.
In today's chart we look at the opportunity cost and impact on an investor deciding to act on such comments by such Armageddonists since 2010.
Source: JP Morgan
The point of this exercise is not to point the finger and chuckle. Rather, educate investors on the opportunity cost for rotating portfolios on such comments and predictions. Doomsayers will always be rewarded with a recession. If you predict something for long enough, you will be right...eventually. Following dire market forecasts tends to cost investors bucket loads of money as the above analysis has shown.
I'm a massive fan of Ray Dalio, he's run one of the most successful hedge funds in the world. His insights, point of view, and thought process is profound. If you listen to some of his comments, you would be forgiven for thinking he's a permabear. Yet when you look at Bridgewater's portfolio, it's far from it. What someone says on TV or in the paper does not necessarily mean that is how their portfolio is positioned. What one says and what one does are two very different things.
Although optimism sounds like a sales pitch, which pessimism sounds like someone trying to help you, more money is lost in predicting a crisis than the crisis itself.