For those interested in a slightly more deeper dive into views on investor behavior in the markets, two names that belong on the list of knowledgeable practitioners are Robert Shiller (Economics Professor at Yale Univ and 2013 Nobel Laureate) and Burton Malkiel (Economics Professor at Princeton Univ and author of A Random Walk Down Wall Street). Shiller is mostly a behavioral finance person and Malkiel is a proponent of the “efficient market”. In this debate they cordially discuss how this current COVID-19 period is colored by our views and beliefs.
In graphical form, this update provides insight to how global economies are progressing with a re-opening efforts. This is one to keep handy and look back on in 12-months or so. Certainly, this will be a process that will be with us for the foreseeable future.
These next insights may not come as a surprise to many of us, but it is a stark reality of how people tend look at life – in general. In the business of finance and investments, there is a field of study called Behavioral Economics. (The Shiller vs Malkiel debate mentioned above is an example.) It relates to not only how we make decisions but also why there is a tendency to basically see the glass half-empty and not half-full. Another way to say this in the world of finance is simply “losses make us feel worse than gains make us feel good”. Ben Carlson is succinct by outlining how this way of thinking relates to the COVID-19 world of today here. Like it or not, we all have biases and I would argue that is a good thing. But with the challenges of today (and there are a few serious ones) we can choose to look at overcoming these difficulties and coming out stronger on the other end. The age-old adage – this too shall pass – is worth keeping in mind.
FourThoughts – Jim Butler, CFP®, AIF®