One of the key themes of my new book is the destruction our inherent biases cause. I discuss the basic macro trends that make the life of the pessimistic so difficult over the long-term. And I discuss how so many people are hoping and relying on your fear so they can help separate fearful people from their hard earned income. And while I think it’s foolish to be anything other than an optimist over the long-term, I also think it’s foolish to be recklessly optimistic. That is, we should approach life with skepticism and a certain degree of measured optimism. After all, reckless optimism can be just as dangerous as permanent pessimism.
I was reminded of all of this as I read an excellent post by Morgan Housel which you should definitely go read. He does a brilliant job of putting the destructive nature of fear in the proper context. We seem to live in an unusual period of fear. But the reality is that the world is actually becoming a much safer place. Violent crime rates, murder rates, rape rates, robbery rates, aggravated assault rates and property crime rates are all down tremendously over the last 20 years (see here). Interstate warfare is at 50 year lows. So what are we all so scared of all the time?
It seems to me that the business of fear has become a big business. The downside of the proliferation of technology and information is that we are increasingly prone to propaganda. Turn on the evening news and see how many times they discuss something scary. Flip on CNN and see how many hours of plane crash footage they can jam into a 24 hour period. Turn on Discovery Channel and see how many repeats of Shark Week are on. Turn on financial news to see someone predicting the next big market crash. This is all just attention grabbing fear mongering. As I wrote in my book:
“never forget that those selling fear probably are not out to serve your best interests in the long run. They are most likely serving their own inherently negative biases and self-interests in the hope that you will buy into their agenda.
Be wary of those selling fear, and be particularly wary of letting your own fear hold you back. Of course this doesn’t mean you should be recklessly optimistic. The US economy and the global economy have and will encounter substantial turbulence in the future. But don’t let your emotions paralyze your potential production.”
This doesn’t mean you should rush out and be a reckless or naive optimist. Of course not. The world has big problems and will inevitably encounter big problems. In fact, naive optimism will likely result in some of the booms that lead to busts. But be careful going all in on the message of fear. Most of the time it’s being sold to you by people hoping to take advantage of your biases so they can separate you from your hard earned income.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.