The ever-evolving wall of worry
- June 17th, 2012
Josh Brown at The Reformed Broker has a great post up talking about the ever evolving, and ever present idea that the world around us “crumbling down.” It seems that whenever we check in on history we see a belief in some existential threat. Those threats change over time with most issues melting away as they become increasingly unlikely.
But the stuff in the headlines is really big, bigger than you and I and our careers and families. It is generational stuff, decades in the making. It is cultural stuff, you are watching a conflict where the hearts and souls of entire civilizations hang in the balance. We cannot know the way forward or how these events will turn out. What they will mean in a year, in ten years.
We are small in comparison to the levers being pulled and the wheels that are turning. We cannot help but notice them but we should not forget that we are not in a position to influence them. But there are things we can do. Projects we can labor at, initiatives we can undertake, important work we can finish. We can be diligent and creative and willful and decisive while the larger forces clash and mold and shape what is to come.
The point being that we cannot put lives: creative, financial or otherwise on hold until there is an all-clear signal, because there never is an all-clear signal. In that same light we linked to a piece earlier today by Jeff Cox at CNBC who quotes Nicholas Colas of ConvergEx. The point of which make sense when you think about all the existential threats at present:
“The end of the world only happens once – Monday probably isn’t the day. Through recessions and depressions, flashes and crashes, we seem to persevere. “For all the well-publicized challenges facing markets and investors, financial Armageddon is still an unlikely occurrence,” Colas writes. “And even if it does happen, what are the chances you really have enough gold coins, freeze-dried food and double-aught buckshot anyway? “It is OK to prepare for disasters; just make sure you plan for success as well.”
The bottom line is that there is always something to worry about. If you spend all your time preparing for disasters the chances are you will miss opportunities that come across your field of vision. In an earlier post we talked about the importance of not only compounding interest over time but also “compounding experience.” We have within our reach the ability to learn and gain experience now with the hope that experience will pay off for us at some later date.
In our book, Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere we tackled this idea of the “wall of worry” and how it is that it is being continually built and rebuilt. In irony is that when there is nothing to be afraid of is when markets oftentimes top out. We wrote:
So most of the time and for most assets, there exists a wall of worry. It takes a lot to convince the general public to achieve a level of willful disbelief that the risk in any asset has been eliminated. For any market, or stock, to achieve this level of risk blindness, something else needs to occur. A market needs to eliminate the proverbial wall of worry before it can seem like it is bulletproof to investors. Ironically those markets that have performed the best, that have supplanted whatever worries existed and now seem invulnerable, are actually the riskiest. This perception of invulnerability sows the seeds of the market’s eventual and inevitable decline.
That is clearly not the case today.
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- Thursday links: understanding Wall Street
- 6 Essential Principles from Pragmatic Capitalism by Cullen Roche
- Wednesday links: the multiplier effect
- Tuesday links: knowledge alone
- To bond ETF or not: an excerpt from Rational Expectations by William Bernstein
- Monday links: excessive valuations
- Sunday links: paralyzed with fear
- Top clicks this week on Abnormal Returns
- Saturday links: ripe for disruption
- Friday links: investor class attentions