What caught my eye this week.
The first time you hear a permabear 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 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 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
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, 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:
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 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.
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
FIRE-side chat: investing to go – Monevator
From the archive-ator: The index investor’s road map for avoiding financial hazards – Monevator
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
CPI inflation drops to 6.7%… – This Is Money
…and Bank of England holds the base rate at 5.25% – Which
UK rents rise at fastest pace in nine years – BBC
Landlords in Yorkshire abandon BTL over high interest rates – Guardian
Workplace pensions boost for 18-year olds – Which
Want to be happy in London? Just earn £79,524 according to new study – E.S.
State pension income tax warning: more will have to pay – Which
Apple and Goldman planned stock trading feature for iPhone until markets slid – CNBC
Wall Street has nothing to do – Semafor
Products and services
Nationwide launches £200 switching offer plus regular saver paying 8% – Which
As mortgage rates fall, should you choose a two or five-year fix? – Guardian
Open a SIPP with Interactive Investor and claim £100 to £3,000 in cashback. Terms apply – Interactive Investor
Monzo is offering cashback in new trial – Be Clever With Your Cash
Has Apple Pay made it too easy to spend money? – Vox
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
How AirBnB reduced partying by 55% in two years – CNBC
Arts and crafts homes for sale, in pictures – Guardian
Comment and opinion
Just being average – Humble Dollar
How to pay for long-term old age care [Search result] – FT
Should your borrow at 1% or let me your child do it at 7%? – This Is Money
How my allotment makes me a profit [Search result] – FT
How often to rebalance a portfolio [Fund tax costs bit is US-centric] – Oblivious Investor
Should you trust financial information from a ‘finfluencer’? – BBC
‘Sandwich generation’ footing bill for non-workers, says former BOE economist – T.I.M.
Lifetime ISA rules should be relaxed to “benefit the self-employed” – This Is Money
Rise of the Ronin – Humble Dollar
Mistakes that compound in the market – A Wealth of Common Sense
College-educated investors earn higher returns – Klement on Investing
Investment funds are now selling the rock songs they bought – The Honest Broker
Convertible bond ETFs are basically repackaged equity risk – Finominal
Naughty corner: Active antics
Fewer losers, or more winners? – Howard Marks
Why selling is so hard to do – Flyover Stocks
Could a falling personal savings rate actually be a good thing? – TKer
Goldman to enable more high net worths to buy into sports teams – Front Office Sports
What matters? – Behavioural Investment
Pump-and-dump manipulation in the crypto markets [Research] – Alpha Architect
Kindle book bargains
Quit: Knowing When To Walk Away by Annie Duke – £0.99 on Kindle
How to Read Numbers by Tom Chivers – £0.99 on Kindle
Freakonomics by Steven D. Levitt – £1.99 on Kindle
Creativity Inc. by Ed Catmull – £0.99 on Kindle
Environmental factors
Could Sunak’s green review threaten UK net zero? – BBC
Government is likely to face legal challenges over net zero U-turn – Guardian
Populism could derail the green transition [Search result] – FT
Famers can contribute to a ‘hedge fund’ for nature at little cost – Guardian
Business people protest in London with queue for climate – BBC
South Africa’s missing sharks have been found – Hakai
Your laptop is a goldmine – BBC
Robot overlord roundup
The post-hype Golden Age for AI has arrived – ETF Trends
ChatGPT for you – Seth Godin
Sam Altman’s master plan – The Grand Re-design
Dr. Google meets its match in Dr. ChatGPT – NPR
The irony of automation – Dror Poleg
Off our beat
The ‘world’s happiest man’ on the secrets of a serene and satisfying life – Guardian
How to rewire your brain in six weeks – BBC
Is it better to be a big fish in a little pond? – Art of Manliness
Arthur Brooks: how to build the life you want – Next Big Idea Club
A few things I’m pretty sure about – Morgan Housel
What Ukraine knows about the future of war – The Atlantic via MSN
Sunak’s green pledge sparks ridicule on social media – Guardian
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
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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!
The post Weekend reading: don’t care permabears appeared first on Monevator.
