What caught my eye this week.
The first time you hear a permabear [1] warning of an imminent stock market meltdown – if not of total economic ruin – you’re nervous, and yet also intrigued.
How lucky you were to come across this inside scoop from such an authority!
Perhaps you take even action on the back of it.
The second time [2] you are (usually) somewhat wary. After all, the first time (nearly always) turned out to be a false alarm.
The third time you hear the same doomster [3] warning of a market meltdown just before stocks leg up another 10%, you think: “This guy is an idiot”.
The tenth time you hear him repeat the warning – on CNBC and Bloomberg and in the FT no less – you find a grudging new respect: “He’s no Cassandra, but he’s clearly no idiot. He must know what he’s doing.”
The bare minimum
The persistent popularity and weight given to the views of high-profile permabears is by turns infuriating and confounding to those of us making our way in the slow and less-than-sensational lane.
Eventually we learn that bears get a lot of coverage because bad news always sounds smarter.1 [4]
But this still doesn’t explain how easily permabears are forgiven their dire records. However smart they sounded back then, they were still mostly wrong after all.
Well to that point, commentator Sam Ro did everyone a favour with a simple yet convincing insight this week. Writing on his blog TKer [5], Ro says:
I’ve noticed a pattern in how retail investors rationalize their financial performance after embracing an incorrect bearish view.
It goes something like this: “Well, at least I didn’t lose money.“
This is a simple but brilliant observation.
Retail investors don’t short the market when they get bearish like many pros. They just take risk-off. Either by selling everything or by selling a bit.
If the market goes down, they’re happier than if they took no action.
But if – as it usually does – the market goes up, then they are both ill-equipped and indisposed to calculate the opportunity cost of not maximising their gains by instead taking bear-inspired evasive action.
Ro sums it up with this graphic:
[6]
I am sure he’s on to something with this.
But I won’t steal any more of his thunder – please go read the full piece [5] for Sam’s explanation.
Bear necessities
Seen through this lens, other aspects of permabear punditry tactics make more sense, too.
For instance, it explains why permabears are so consistently apocalyptic. They might as well be, because they win so long as their followers do not lose money.
(Remember, their followers are of course missing out on gains. This is huge over time! But our assumption here is it takes a long time – if ever – before the followers get wind of this).
For a bear, being occasionally nuanced about market hunches doesn’t cut much ice.
Firstly it’s only one step up from the most respectable position – which is of course that nobody knows anything, basically.
Hardly something to get you the label Dr Doom.
It’s also ineffective because it fails to cut through the noise. You won’t get labeled – let alone acclaimed – because you won’t be heard or remembered.
For instance, I was – modestly and waveringly – bearish in early 2022, to the extent that I discovered Monevator was being discussed as such on social media and in the comments of other blogs!
It even turned out (lucky me) that I happened to be right to be bearish.
But guess who remembers?
Nobody – most especially I’m sure not those who wrote those comments. (Not even the Monevator regular who memorably wrote elsewhere that were too depressed by reading Monevator at that time, so they had gone to that alternative blog for a cheery pick-up…)
Barely there
Of course I have no aspiration to become a permabear – or anything much more than mildly obsessed active investor with their own website with a few hundred truly wonderful supporters [7].
But if I was planning to give the permabears a run for their money, then my early 2022 experience was a valuable lesson.
If you going to say the sky is falling, you should really shout it loud that the sky is falling.
And make a diary note to shout it again next year.
And the year after that…
Have a great weekend!
From Monevator
Best bond funds and bond ETFs – Monevator [8]
FIRE-side chat: investing to go – Monevator [9]
From the archive-ator: The index investor’s road map for avoiding financial hazards – Monevator [10]
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
FCA finds no evidence of customers being debanked for their politics – Guardian [11]
CPI inflation drops to 6.7%… – This Is Money [12]
…and Bank of England holds the base rate at 5.25% – Which [13]
UK rents rise at fastest pace in nine years – BBC [14]
Landlords in Yorkshire abandon BTL over high interest rates – Guardian [15]
Workplace pensions boost for 18-year olds – Which [16]
Want to be happy in London? Just earn £79,524 according to new study – E.S. [17]
State pension income tax warning: more will have to pay – Which [18]
Apple and Goldman planned stock trading feature for iPhone until markets slid – CNBC [19]
[20]
Wall Street has nothing to do – Semafor [21]
Products and services
Nationwide launches £200 switching offer plus regular saver paying 8% – Which [22]
As mortgage rates fall, should you choose a two or five-year fix? – Guardian [23]
Open a SIPP with Interactive Investor and claim £100 to £3,000 in cashback. Terms apply – Interactive Investor [24]
Monzo is offering cashback in new trial – Be Clever With Your Cash [25]
Has Apple Pay made it too easy to spend money? – Vox [26]
Open an account with low-cost platform InvestEngine via our link [27] and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [27]
How AirBnB reduced partying by 55% in two years – CNBC [28]
Arts and crafts homes for sale, in pictures – Guardian [29]
Comment and opinion
Just being average – Humble Dollar [30]
How to pay for long-term old age care [31] [Search result] – FT [32]
Should your borrow at 1% or let me your child do it at 7%? – This Is Money [33]
How my allotment makes me a profit [Search result] – FT [34]
How often to rebalance a portfolio [Fund tax costs bit is US-centric] – Oblivious Investor [35]
Should you trust financial information from a ‘finfluencer’? – BBC [36]
‘Sandwich generation’ footing bill for non-workers, says former BOE economist – T.I.M. [37]
Lifetime ISA rules should be relaxed to “benefit the self-employed” – This Is Money [38]
Rise of the Ronin – Humble Dollar [39]
Mistakes that compound in the market – A Wealth of Common Sense [40]
College-educated investors earn higher returns – Klement on Investing [41]
Investment funds are now selling the rock songs they bought – The Honest Broker [42]
Convertible bond ETFs are basically repackaged equity risk – Finominal [43]
Naughty corner: Active antics
Fewer losers, or more winners? – Howard Marks [44]
Why selling is so hard to do – Flyover Stocks [45]
Could a falling personal savings rate actually be a good thing? – TKer [46]
Goldman to enable more high net worths to buy into sports teams – Front Office Sports [47]
What matters? – Behavioural Investment [48]
Pump-and-dump manipulation in the crypto markets [Research] – Alpha Architect [49]
Kindle book bargains
Quit: Knowing When To Walk Away by Annie Duke – £0.99 on Kindle [50]
How to Read Numbers by Tom Chivers – £0.99 on Kindle [51]
Freakonomics by Steven D. Levitt – £1.99 on Kindle [52]
Creativity Inc. by Ed Catmull – £0.99 on Kindle [53]
Environmental factors
Could Sunak’s green review threaten UK net zero? – BBC [54]
Government is likely to face legal challenges over net zero U-turn – Guardian [55]
Populism could derail the green transition [Search result] – FT [56]
Farmers can contribute to a ‘hedge fund’ for nature at little cost – Guardian [57]
Business people protest in London with queue for climate – BBC [58]
South Africa’s missing sharks have been found – Hakai [59]
Your laptop is a goldmine – BBC [60]
Robot overlord roundup
The post-hype Golden Age for AI has arrived – ETF Trends [61]
ChatGPT for you – Seth Godin [62]
Sam Altman’s master plan – The Grand Re-design [63]
Dr. Google meets its match in Dr. ChatGPT – NPR [64]
The irony of automation – Dror Poleg [65]
Off our beat
The ‘world’s happiest man’ on the secrets of a serene and satisfying life – Guardian [66]
How to rewire your brain in six weeks – BBC [67]
Is it better to be a big fish in a little pond? – Art of Manliness [68]
Arthur Brooks: how to build the life you want [69] – Next Big Idea Club [70]
A few things I’m pretty sure about – Morgan Housel [71]
What Ukraine knows about the future of war – The Atlantic via MSN [72]
Sunak’s green pledge sparks ridicule on social media – Guardian [73]
And finally…
“The lesson is that no amount of sophisticated statistical analysis is a match for the historical experience that ‘stuff happens’.”
– Mervyn King, The End Of Alchemy [74]
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- In my case I actually thought that I’d make that observation up myself here years ago. But it seems vanishingly unlikely in retrospect! [↩ [81]]