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<\/a><\/p>\nAnd in both ways, you are being foolish, and unreasonable. Permit me to explain with the help of an article I saw this morning regarding the fact that most of us have missed the the stock market rally that turned three years old back on March 9th. I\u2019ve got graphs and charts for your entertainment value as well.<\/p>\n
But wait a minute, you argue. What gives you the right to analyze our actions in light of something so repellant as the device Mammon uses to weigh, grow, and destroy wealth? I mean, Frank(!), stocks and the market that deals in them are evil, man! Don\u2019t you see that?<\/p>\n
Nope, I don\u2019t. Remember me? I\u2019m the contrarian<\/a>. I\u2019m also the guy who wrote about the most successful \u201cinvesting\u201d company of all time<\/a>. Oh, I\u2019m definitely a weird one. The one who came \u201cthis close\u201d to selling his soul to Mammon, but was called away<\/a> when My Lord exercised his \u201ccall option\u201d on my life.<\/p>\n That\u2019s probably why I\u2019m a kindred spirit with Blaise Pascal, who says,<\/p>\n \u200e\u201dSince we cannot know all that is to be known of everything, we ought to know a little about everything.\u201d<\/p><\/blockquote>\n And that includes investing (especially if you have a 401k or IRA). Because the markets for stocks and bonds are no more evil than any other market, see? Because they are made up of underlying players who are no more, or less, evil than every one of us is individually. Oh, for sure, it\u2019s \u201cfallen\u201d just like the whole human race, but that doesn\u2019t make it evil. It just makes it volatile at times, placid at others, and downright scary to many who have control issues. And it is in dire need of redemption, too, because it is a reflection of all of us. It seems to many also to be like an ocean whose ebbs and flows are unknowable.<\/p>\n And it is all that, for sure. The wisest investors warn us that no one person is smarter than \u201cthe market.\u201d But the ups and downs of the stock market play havoc on the minds of folks and if you aren\u2019t aware of the landscape (seascape?) that you enter upon when you become an investor, then you will be subject to many, if not most, of the same traps and snares that have occurred, and have been uncovered, and have harmed, investors since time and markets began.<\/p>\n To be an investor, see, takes an act of faith. And to be a Christian takes an act of faith even greater than the faith required of an investor.<\/p>\n So what does all that have to do with the Church and her Bishops? I\u2019m reminded of G.K. Chesterton\u2019s thoughts from his essay Why I am a Catholic<\/em>, is all.<\/p>\n There is no other case of one continuous intelligent institution that has been thinking about thinking for two thousand years. Its experience naturally covers nearly all experiences; and especially nearly all errors. The result is a map in which all the blind alleys and bad roads are clearly marked, all the ways that have been shown to be worthless by the best of all evidence: the evidence of those who have gone down them.<\/p>\n On this map of the mind the errors are marked as exceptions. The greater part of it consists of playgrounds and happy hunting-fields, where the mind may have as much liberty as it likes; not to mention any number of intellectual battle-fields in which the battle is indefinitely open and undecided. But it does definitely take the responsibility of marking certain roads as leading nowhere or leading to destruction, to a blank wall, or a sheer precipice. By this means, it does prevent men from wasting their time or losing their lives upon paths that have been found futile or disastrous again and again in the past, but which might otherwise entrap travelers again and again in the future. The Church does make herself responsible for warning her people against these; and upon these the real issue of the case depends. She does dogmatically defend humanity from its worst foes, those hoary and horrible and devouring monsters of the old mistakes.<\/p><\/blockquote>\n And that is what the following article on behavioral finance got me to thinking about. For you doomsayers out there, you will love the title: Why Are American\u2019s Avoiding Stocks? Ask A Shrink. <\/em> So what popped into my mind? \u201cWhy Are American Catholics Avoiding the Bishops? Ask Joe Six-Pack.\u201d But folks aren\u2019t going to ask Joe what he thinks, so he\u2019ll just reprint the \u201cStocks to Shrinks\u201d article and comment around it accordingly.<\/p>\n Be patient with me and please\u2026don\u2019t kill the messenger. Here goes,<\/p>\n Why Are Americans Avoiding Stocks? Ask a Shrink<\/strong><\/p>\n Why are Americans avoiding stocks? Experts in the field of behavior finance have a few ideas The headlines say the financial crisis is behind us. The Dow is back to pre-financial crisis levels. Layoffs are the slowest since the financial crisis, and car sales the highest since the financial crisis.<\/p>\n So why are Americans still too scared to get back in the stock market? Am I really climbing out on a limb by saying that when American Catholics hear the word \u201cBishops\u201d and \u201ccrisis,\u201d they immediately associate these words with the child sex abuse scandal that has rocked the Church world-wide? I don\u2019t think so. Visions of the \u201cLong Lent\u201d from 2002<\/a> come welling up immediately, don\u2019t they? According to the combox attached to E.J. Dionne\u2019s Washington Post article<\/a> the other day, they do. Sort of like how investors became deer in the headlights in 2008,<\/p>\n Every comparison to 2008, even a comparison that\u2019s supposedly good, stirs memories of 2008. For some people, it rekindles the fear of losing a job or a house. For others, years of retirement savings swallowed by a plunging stock market.<\/p>\n So say the experts in the budding field of behavioral finance. Professional investors and money managers may be baffled that Americans are shaking off the good news. But people with a background in psychology are hardly surprised.<\/p><\/blockquote>\n What \u201cgood news?\u201d You mean you weren\u2019t rebalancing<\/a> your 401k portfolio on March 9th, 2009, you know, at the bottom? Why not, dear reader? Afraid that for the first time ever, every company in America was going bankrupt and would disappear from the face of the earth? Heh. Back to Matthew\u2019s article,<\/p>\n A broad measure of the stock market, the Standard & Poor\u2019s 500 index, is up more than 20 percent from last October. The index has more than doubled since March 9, 2009, the low point for stocks during the Great Recession.<\/p><\/blockquote>\n This calls for a photograph! The blue dot equals October of last year.<\/p>\n The little blue line in the chart above is the value of the Standard and Poors 500 since 1993. The red line represents the return the bond market has grown by over the same time period. But folks aren\u2019t buying stocks now. Instead, they\u2019re buying bonds in record numbers<\/a>, you know, when they are yielding next to nothing, as noted by the Wall Street Journal,<\/p>\n But everyday investors refuse to jump in. They pulled $19 billion from funds that invest in U.S. stocks in December, according to the Investment Company Institute, and $2 billion more in January.<\/p>\n \u201cIn the old days, if there was a market rally, people would call and ask to put more money in. They felt they were missing the party,\u201d says Deborah DeMatteo, an independent wealth manager at 10-15 Associates in Goshen, N.Y.<\/p>\n This time, investors seem more than happy to miss the party.<\/p>\n \u201cNow, people call and ask, \u2018When is it going back down?'\u201d DeMatteo says. \u201cThere\u2019s a sense of doom.\u201d<\/p>\n What are they thinking? It\u2019s a question fit for a shrink.<\/p><\/blockquote>\n Are you still with me folks? We\u2019re getting to the really good part! Unless, that is, you think psychology is all bunk too. Either way, prepare to look in a mirror.<\/p>\n Market psychology is still psychology, which is why Wall Street banks and investment firms pay people like Richard Peterson, a psychiatrist with a medical degree from the University of Texas, to help make sense of it.<\/p>\n A variety of emotions and thought processes are keeping Americans out of the stock market, Peterson and other experts say. The memory of 2008, when the Dow Jones industrial average swung wildly by hundreds of points a day, is probably No. 1.<\/p>\n The tumult of that year stamped itself in many people\u2019s brains. Like survivors of a devastating earthquake, they carry those events with them.<\/p>\n \u201cA traumatic memory gets seared in the brain,\u201d Peterson says.<\/p><\/blockquote>\n I think I can follow him here regarding the traumatic memory sear, can\u2019t you? Think of your own experiences and I guarantee that some memory just popped into your head and you almost wanted to bolt from where you\u2019re sitting and head for the hills, right? That\u2019s because wounds leave scars and,<\/p>\n In this case, the wound is easily irritated. News that reminds people of the financial crisis \u2014 debt problems in Europe, a sudden swing in the market \u2014 sets off the same emotions of fear or anger. Getting your fear button pushed that often is exhausting, Peterson says.<\/p>\n People eventually tune out to save their sanity.<\/p><\/blockquote>\n Golly\u2026I wonder if folks in politics know about how psychology effects the herd? Surely they wouldn\u2019t try to play upon our past fears, and angers, etc., in order to bend us to their will, would they? That\u2019s just a hypothetical question from Joe Six-Pack. Please pay him no attention because,<\/p>\n \u201cFear is still with us,\u201d says Meir Statman, a professor of finance at Santa Clara University<\/a> in California and a leading expert in behavioral finance. \u201cWe live as if it\u2019s still 2008.\u201d<\/p><\/blockquote>\n Leave it to a Jesuit-run university to have an expert in behavioral finance on the faculty. You have got to love the irony, eh? Let\u2019s see what more the professor has to say, shall we? Eyes will be opened, that is if your mind is open. Habits drive impulses, see? And that is why we react with our gut, and not our brains, unless we realize that is silly. I mean, we don\u2019t want to be caught dead doing what he describes next.<\/p>\n Statman sees a few other impulses at work. One is a habit of thinking that selects an event and uses it as the basis for understanding everything else. \u201cWe look at something and ask, \u2018What is this similar to?\u2019 Statman explains.<\/p>\n In good times, this leads to the folly of \u201creturn chasing\u201d \u2014 expecting an investment, sports team or pickup line to be successful simply because it proved successful in the past.<\/p>\n People usually do this kind of extrapolation from recent events. But Statman suspects many are using the more distant memory of 2008 because it feels closer. \u201cI think that what\u2019s vivid in people\u2019s minds is not last year but 2008,\u201d he says.<\/p><\/blockquote>\n Scars will do that to you. Time for another picture!<\/p>\n I now interrupt Matthew\u2019s narrative for a brief history factoid provided by the evil (just kidding!) folks of Credit Suisse, who can explain the graph above.<\/p>\n An initial sum of USD $1 invested in US equities in 1900 grew, with dividends reinvested, at an annualized rate of 9.2% per year to become USD $14,276 by the end of 2008. Such is the power \u2013 over 109 years \u2013 of compound interest, \u201cthe mostpowerful force in the universe\u201d (a phrase incorrectly attributed to Albert Einstein).<\/p>\n Since US consumer prices rose by almost 25-fold over this period (inflation, -ed.<\/em>), it is more helpful to compare returns in real terms (which means \u201cadjusted for inflation, -ed.<\/em>) Figure 2 shows that an initial investment of USD $1 would have grown in purchasing power by 582 times (in stocks with dividends reinvested, -ed.<\/em>).<\/p>\n The corresponding multiples for bonds and bills are 9.9 and 2.9 times the initial investment, respectively. These terminal real<\/em> wealth figures correspond to annualized real<\/em> returns of 6.0% on equities, 2.1% on bonds and 1.0% on bills.<\/p><\/blockquote>\n Are you still with me, folks? See, I learned all that lingo back when I was in college and when I worked (briefly!) for Merrill Lynch. You can argue with me all day long, and fifteen hours on a Sunday why when you personally invest in stocks you have lost all your marbles, but that is kind of the point of this post, remember? Albert Einstein reportedly also said, \u201cthe definition of insanity is doing the same thing over, and over, again and expecting different results,\u201d though I can\u2019t prove he actually said that. Others think it was author Rita Mae Brown<\/a>. No matter, because it\u2019s a jewel that means \u201cbuying when folks are excited about an investment will guarantee you will lose.\u201d<\/p>\n Meanwhile, back at Matthew\u2019s article, we return to the fact that most folks don\u2019t want to be confused with \u201cthe facts.\u201d<\/p>\n As a result, they respond to events as if it were September 2008 and Lehman Brothers were about to collapse all over again. In this case, Statman says it\u2019s not fear that\u2019s driving people but an error of reasoning<\/strong>.<\/p><\/blockquote>\n Heh! Yes, that was my bold. How about an example, more telling than the long-run chart shown above?<\/p>\n Last summer, for instance, a fight over raising the federal government\u2019s debt limit led Standard & Poor\u2019s to strip the United States of its top-flight AAA rating. The markets went wild. For the month of August, the Dow swung an average of nearly 2 percent every day.<\/p>\n Harvey Rowen, chief investment officer at Starmont Asset Management in San Francisco, says clients called and wanted to cash everything out. \u201cI\u2019d tell them, \u2018You\u2019re going to take a loss,'\u201d he says. \u201cAnd they\u2019d say, \u2018I don\u2019t care. I want out.'\u201d<\/p><\/blockquote>\n Visions of financial armageddon will do that to you. Especially if you forgot the history that warns folks to beware when markets come unhinged from the underlying economic reality that they are a proxy for. How do you know when that happens? Shall I show you Sir Issac Newton\u2019s graphic?<\/p>\n Somewhere, there is a similar graph for home prices from 1997 to 2009. Here it is, courtesy of Professor Robert Shiller.<\/p>\n And it\u2019s companion graph showing how cheap housing is to buy right now, you know, when nobody wants to buy it because everyone is afraid (if they aren\u2019t underwater).<\/p>\n Which leads otherwise normal folks to do what you\u2019ll read in Matthew\u2019s article next\u2026<\/p>\n One client called with a demand to sell all his investments. He wanted Starmont to use the cash to buy gold bars, silver bars and Swiss francs and then cart them to his house. \u201cWe managed to talk him out of it,\u201d Rowen says.<\/p>\n Another habit that (Professor)Statman sees at play is confirmation bias<\/a>. It\u2019s often used as a way to help explain the widening political divide in the U.S. between Democrats and Republicans.<\/p>\n Say you believe that the federal government\u2019s debts will cause the U.S. to go the way of Greece. Instead of looking for information that challenges this view, you stick to news reports that confirm your opinions.<\/p><\/blockquote>\n Pretty easy to do, nowadays, what with folks sticking to their favorite music, movies, news outlets, etc. New Media Cocooning<\/em>, is actually confirmation bias. In that narrow world, see,<\/p>\n \u201cIf you have evidence that goes against your beliefs, you dismiss it,\u201d he says.<\/p>\n Statman says it seems some people are looking to confirm a \u201cdoom and gloom\u201d view of the U.S. economy. Point out that the economy grew at a 3 percent rate in the last quarter of 2011 and they\u2019ll change the subject.<\/p>\n Their view, he says, is: \u201cThis country is going down the tubes.\u201d<\/p><\/blockquote>\n And that is the end of the article. By the way, \u201cCatholic\u201d doesn\u2019t not mean \u201cnarrow,\u201d saavy?<\/a><\/p>\n It took me an awful long time to tell you about the dangers of confirmation bias<\/em>, didn\u2019t it? By now you really shouldn\u2019t need me to explain how many of us slip on it like a banana peel in other areas of our life. It helps explain, to me anyway, how some may underestimate the Bishops today, and how they decide to handle the HHS Mandate\u2019s attack on our freedom, just like folks underestimated the former fishermen, the tax-collector, the zealot, the Pharisee, and the rest, who they are linked to from way back when the Church was founded by the 30 year old carpenter who died at the age of 33, and still lives today.<\/p>\n Stick with the Bishops, or follow the guys who say \u201cbuy high, and sell low?\u201d<\/a> Thanks for the offer, but I\u2019ll be following my shepherds.<\/p>\n
\nBy Matthew Craft, AP Business Writer<\/a> | Associated Press \u2013 Sun, Mar 11, 2012 12:18 PM EDT<\/p>\n
\nBecause all they hear is \u201cfinancial crisis.\u201d<\/p><\/blockquote>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n