I had a colleague write me the other day and the email simply said, “I hate this market.” No other context was given besides his brief statement. Now normally this statement wouldn’t really give me pause, but then I got to thinking. Why? How can people not be happy right now? Markets are pushing all-time highs weekly. Home prices in a large percentage of the country, have either recovered or risen above pre-2008 levels. Tax receipts are up and unemployment is sub 5%. Not to mention job openings are at an all-time record topping out above six million.
Despite all that good news people tend to take a very dim view of all things economy related. To give an example, when people find out I’m a financial advisor, I normally get asked two questions in this sequence. “What’s the hot stock right now?” I don’t know and never will, that answer always disappoints everyone by the way. The next question is, “So when’s the market going to crash again?” Again, I don’t know, and if I actually thought it was going to crash why would I be investing the client’s money into it?
Most people have a negative bias, which means negative stands out more than positive. People who lose one hundred dollars feel greater emotion, than if they had won one hundred dollars. It’s generally thought that it takes one negative experience to wipe out three positive ones. So, you make money on three positions in your portfolio and lose money on one, most people laser focus in on the one. Now throw in a general distrust and confusion people have about the stock market, and you can understand people’s annoyance. The biggest reason though is most people don’t capture the bull market gains.
It all goes back to the negative bias. People’s risk tolerance in relation to the perception of the world around them, unfairly influences their investment decisions. Most people tend to hyper focus on the negatives, exactly as if they’re hard wired to do so. Which, then in terms translates into a portfolio that isn’t correctly aligned with their goals. So, when the bull market does come around people are typically under-invested in the areas that would benefit them the most. Then it turns into a waiting game. The market’s too high I can’t buy here, or the market is falling but it’s going to fall further, I’ll buy then.
Investors always want to do today, what they should have done two years ago. As investors who have put themselves on the sidelines for various reasons, watch as the market passes them by, it’s natural to get frustrated. On the flipside investors who have strong gains now wish to protect them at all costs, and go through the anxiety inducing “What should I do now” game. This constant up and down of emotions, can be just one of the reasons people have a hard time with bull markets.