The (Expected) Cost of Pessimism
HTML-код
- Опубликовано: 16 ноя 2023
- If worrying about the next market crash is affecting your investment decisions, you might be making an expensive mistake.
People spend so much time worrying about the next downturn that they miss out on market returns, which tend to be positive in the long-run.
These errors lead investors to hold more conservative portfolios than a more optimistic investor would, to avoid participating in the stock market altogether, and to sabotage their long-term returns with short-term decision-making. There are some potential solutions.
References: zbib.org/ba1e54f7812842f6b2e1...
Related podcast episode: The (Expected) Cost of Pessimism (Plus Matthew Dicks on the Value of Storytelling) | RR 267
• The (Expected) Cost of...
------------------
Follow Ben Felix on
- Twitter: / benjaminwfelix
Visit Rational Reminder: rationalreminder.ca/
Join the Rational Reminder Community: community.rationalreminder.ca/
Follow the Rational Reminder on:
- Twitter: / rationalremind
- Instagram: / rationalreminder
Visit PWL Capital: www.pwlcapital.com/
Follow PWL Capital on:
- Twitter: / pwlcapital
- Facebook: / pwlcapital
- LinkedIn: / pwl-capital
You can find the Rational Reminder podcast on
Google Podcasts:
www.google.com/podcasts?feed=...
Apple Podcasts:
itunes.apple.com/ca/podcast/t...
Spotify Podcasts:
open.spotify.com/show/6RHWTH9...
------------------
Save like a pessimist. Invest like an optimist.
Forgive me for being superficial, but it's fun to see Ben's slow progression from clean-shaven, dress shirt & suit jacket when this channel started via polo shirts and hoodies to Patagonia hipster dad, and I mean that in the best sense possible
"Dude, trust me, the stock market is gonna tank any day now."
"What's your source for that?"
"It was revealed to me in a dream."
As someone who actually reads the articles you refer to in your videos, I really like the way in which you now provide reference to those articles in this new format of your videos. 👍
Great! I thought it was a more efficient solution.
Oh man, yes! I just saw this and it's excellent, even if some references are pay-for-view.
I personally was a pessimist until I discovered this channel in early 2021, it was scary doing a lump sum investment into the market at all time highs and riding out the interest rate changes, Russia declaring war, and all sorts of other market moving events, but this channel reminded me to stay the course, ignore the news and continue my plan. Thank you for everything you do, Ben!
Did you really buy the top at the end of 2021? I would have bought in tranches.
That would have been market timing that Ben is teaching against
Yup all out investment is recommended
@@ShvabicuYou would have done that? So you did that then, right? Yeah, ok
@@rayzerot I just dca into the market every month. Also made a lot of money with puts in 2020
As always Ben, great content! I do enjoy that the Rational Reminder and your channel often talk about similar things, these quicker summary versions are great ways to reinforce the material discussed in the podcast with Cameron
People naturally understand the risks of doing something, like the risk of losing money if you invest. It seems people are far worse at understanding that not doing something is a risk itself.
The risk of not investing, especially in a country like the US where pensions essentially don't exist anymore, is enormous. Far greater than the risks associated with being an investor, in my opinion.
People don't realize they face the guaranteed loss due to inflation vs possible loss and large upside if investing
Loving all the videos lately. Thanks Ben!
I love it when this channel posts. It's the most informative place on youtube.
How can people not be pessimistic when the media keep telling people a recession is coming? Many RUclipsrs are guilty of this as well. Thank you for not doing that.
I'm trying to do the opposite! I did a short on recessions too. ruclips.net/user/shorts_mAJqr3Uzxc
I am 75 and have lived through at least 10 recessions and my parents lived through the great depression. The economy has always recovered. I just yawn when I hear about a coming recession and stay fully invested in stocks. That has worked well for me.
@@BenFelixCSIThat was a valuable short.
For me it is a continual battle to overcome my pessimism. I have to keep strengthening my logical mind, and tuning out the incessant negativity that pervades most media and news sources.
Time in the market > timing the market - invest for the future and you'll have no issues.
Thanks for making this kind of content. It's refreshingly honest and it's taught me a lot about personal investing. The transparency and use of evidence go a long way.
Great insight Ben. also, I am enjoying these more casual format videos versus the old green screen videos.
I used to love checking on the progress of my diminishing home-loan debt. It was a useful feedback loop which encouraged me to save. But that was getting a dopamine hit from observing the effects of my actions. If the stock market is down or up for the week, it has nothing to do my actions, so I try to avoid watching.
One of your best videos. And one of the most universally useful.
Thank you!
I work in investment research anc cannot agree more that for the majority of clients a properly diversified portfolio of low cost ETFs and index linked bonds is the ideal solution. Sure, every so often you can unearth a good idea for those with shorter-term alpha kicker side pots, but overall people just need to get comfortable with their risk appetite and investment horizon, concentrate on building something that fits best to their needs, then invest and forget about it. Maybe nudge a weighting here and there on macro factors, but dont react in panic mode. If something like all out war or total govt failure happens that causes utter market collapse then thats what your gold is for lol, and anyway, we'll all have a lot worse things to worry about than where our pension money has gone 😄
Good advice. I got very pessimistic in 2015-2016 and decided to short the market. I lost so much money doing that. I'm still doing fine since I kept my core holdings alone, but I wish I hadn't done that!
Maybe it is the style of speaking, but my impression from your videos is a general pessimism. Good to see you make this video.
Excellent video as always. Thank you very much.
You're spoiling us, three videos in the space of a week. It can only be an early Christmas present and on that note maybe I should get my wife and I some more low cost ETFs for Christmas
Money advice , quite literally. Thank you for your awesome POVs. Time in the market will always beat timing the market. Thank you brother
Has always great video! It’s been a while since I have tune in with you RUclips channel different layout love it! You should do a Video about books recommendations! You have yourself a great weekend!
Great stuff, Ben. I have personally told friends to take advantage of Vanguard's advisory service when they demonstrated repeated irrational behavior based on events in politics and the economy. Now they can avoid interacting with their portfolios.
Generally, the only thing about market crashes that I find scary, is the possibility of losing my job during an economic downturn. For me, 2008-2009 was a period of self-loathing and frequently raiding my kitchen freezer for comfort eating. I don't easily find work whenever I'm unemployed, which adds to the stress. 2020 was stressful too, but nowhere near as bad since I kept my job (probably because the company fired higher-earning people and kept peanut-earners like me to pick up the slack).
That’s why it is a good idea to always have an emergency fund, and also some portion of your portfolio invested in fixed income… - even if you are not risk averse - it might prevent you from selling your stocks/ETFs during a market crash; and help you endure the volatility…
Thank you Ben, it's nice to hear information based on research and facts in a calm way
Fear of missing out is a huge one. Pessimistic investors could also be seen as overly optimistic. They're holding cash + cash equivalents ready to pounce: the fear of missing out on big returns is stronger than the fear of loss (just an idea from personal experience)
I have another video coming on something similar to this.
This is true to an extent but psychology research tends to find a bias towards losses as Ben mentions. The suspected reason is that in the past it was better to be a bit cautious so you don't get eaten rather than getting that particularly nice bush if berries.
It's so weird that the one time I am holding out for a recession hoping that the indexes will fall, the analysts say it may be the first recession dodge by the market since WW2...
I'm experiencing this! It's been a few months since I withdrew my money from an active fund manager, and now I'm paralyzed by the fear of missing out (FOMO). I know I won't be closely monitoring my investments, so I'm not as afraid of losses as I am of missing a potential all-time low
Ok, but here's the thing... At the same time you explained in a video (and crushed my heart) that the "real" safe withdrawal rate was closer to 2.7% because the "4% rule was too optimistic". So, which one is it!?
(I think I know the answer, but would love to have you help us reconcile that) :)
Great video as always!!
Wóonderfulll video...
As usual...
My strategy is to only check my investments (ETFs) when the market is up. And that keeps me optimistic! 😮
But to know that you need to check the market regularly and might see your investment have decreased at some point
I like the new format where you put the research paper right in the center of the screen as opposed to before in the tiny picture next to your head. Why you did before I have no idea
Thank you for making these videos Ben, can’t explain how much they’re helping me
I enjoyed the quietness. Ty!
I heard this type of talk at my internship back in 2018. Man, that was a good year to start lol
Im getting sick of the financial gurus on the tube basically predicting the end of the world, these rainmakers have been saying the same thing everyday for years.
Me too!
More broadly speaking, we're reaching levels of disenchantment among the general population that are really starting to worry me. Obviously, societal pessimism is a gigantic, multifaceted issue - but in regards to this channel and its mission, I'd hate to think just how many people are avoiding investing because of the gloom.
The really cruel irony, though? Those most fearful of the stock market right now are often the same people who stand to benefit the _most_ from index investing. Creators like Ben Felix and Justin Bender are doing God's work by trying to cut through the noise and give sensible advice, and I can't thank them enough.
Believe me: Your doomsayers are a joke compared the one's we have here in Germany (in numbers and popularity).
Fear and drama sells.
@@jmc8076 most people dont want to do anything, they want to be entertained.
Fear and drama makes the best entertainment.
There's always a reason to believe in stock market returns and a reason to doubt. The doubtful contrarians have picked up that it is about twice as painful to lose a sum of money as it is pleasurable to obtain the same amount (risk aversion), and aim to differentiate themselves for having called the last bear market (e.g., Michael Burry of "The Big Short" fame).
Another mistake investors make is equating the economy to the stock market. If you're worried about, say, inflation, the stock market need not slump in sympathy (it's likely rising in tandem), or conversely, the indexes may drop when unemployment is low (good for the economy) because companies fear the Fed may raise interest rates (making a company's floating rate debt more expensive).
One of the arguments I often hear or read is that generally people invest in average for a 15-30 years period - which makes all analysis done across a 200 years time horizon less relevant. Beside that I agree with you Ben!
The very long horizon data just support the idea that there are persistent risk premiums. One of the papers mentioned here looks at 30-year stock returns within the sample of very long horizon returns and finds that stocks are more likely to maintain purchasing power than bonds or cash at that horizon.
You tell 'em baby!
Thank you for your video! I enjoy your podcast too. Keep posting common sense!
It took me a long time to grasp this basic truth. Investing isn't about predicting the next big winner or out-thinking other investors. It's simply about bearing risk. If it doesn't feel uncomfortable to hold stocks, why should you expect a return above the risk-free rate ? The less time you waste reading market news, the happier (and more successful) you'll be.
Great content, as always. Thanks, Ben!
I love this channel! ❤
first
love your videos Ben
People feel the pain of loss more than the pleasure of gain, and this is reflected in their investing behavior
I've got the same Sitka you've got in the background!
Love this
The knowledge that helped me most- bear markets and recessions are just fantastic buying opportunities. They are not an indicator on the viability of the stock market as a whole
If you're worried about financial dips during retirement then you either need a financial advisor or you need a better one. You should have some combination of cash, CD ladders, money market funds, bonds, annuities, dividends, and/or real estate income to keep you from selling off large stock holdings when the market is down
I always show up for Ben's clincher digs at the end of his videos. 😂
Great content! Keep it up!
I resemble every bit of this.
Margin of safety left the chat. You don't have to sell when overvalued but you definitely have to buy below historical P/E unless you wanna wait for 25 years to breakeven.
Value companies tend to perform better during an economic recession. My form of "pessimism" is increasing my exposure to value companies when market conditions point to a possible recession.
Woohoooo!!! Diamond hands!!! 💎 🙌!!!
That would have been a better title 😂
@@BenFelixCSI oh no! don’t paper hands your title!! 😂
Thanks for all the content Ben, both the podcast and RUclips- keep it up!
Thanks for the laugh 😂
You know if there is research done on the other side of extreme optimism with extremely risky products? I feel like a good way to invest to simply pick a diverse enough ETF (something like that includes multiple indexes and countries) and consistently contribute to it and let time do work for you on letting it compound for you. Nothing ever gets mentioned on which companies have contributed the most to a crash at the height of the bull market rush.
Yes, there is good research on that too. I did a video on thematic ETFs which would fall into detrimental optimism category ruclips.net/video/dwPh-PAg9A8/видео.htmlsi=QjzQwUwDHOSPSrj5
In some point in the future, could you go through the books in your background? I assume that's a lot of influential books that you have found value in, but right now I can't see what they are, despite greatly wanting to. If that's realistic for you. I would also be interested if there are any of them that have impacted your professional trajectory as well, alongside general impact. I associate good information with you now, so when presented with the opportunity I want more.
Potential is always great when you are young.
Love the thumbnail
Great video and fantastic information as usual.
Small (and subjective) stylistic/editing comment- I find that slight crossfade between your cuts more distracting than a hard cut.
Thanks for that feedback. I am editing my own videos for the first time, so comments like this are helpful.
@@BenFelixCSI I'm glad- unsolicited critique is risky! Especially for a fan- I credit RR with guiding me toward evidence-based investing! Listened to the entire catalogue on my daily runs.
Great videos Ben. Thanks RS
Optimism bias and pessimism bias are both cognitive biases. Honestly, you should try to eliminate all cognitive biases when it comes to investing or pretty much any decision. Though we all have to still constantly deal with other people entertaining cognitive biases. I would really enjoy a video about the most common cognitive biases applied to securities markets.
I would say you cannot eliminate cognitive biases thats why they are biases.
You can only be aware that they exist and try to come to a rational solution anyway or even better create workarounds (i.e. not checking your depot etc.)
The research shows that optimism is optimal for financial returns. It's also great for mental health, physical health, and general quality of life. Why the hell would you get rid of something so beneficial in the name of some type of idealism?
Good thumbnail by the way 😂
Goat thumbnail
Key is possible to lose money in REAL terms over a 30 year period. It's only happened in the US during the depression going back 30 years. But nominal you get a return and will beat cash. Look at the other crashes: December 1974, December 2002, and March 2009. All 3 of those have S&P 500 returns over 10%. The Government will step in if we have another depression, or something more awful than the stock market return will happen if things get that bad. Also this is why automatic enrollment into 401Ks is important and fixing the low balance problems where people didn't contribute $1K or $5K where you can either get cashed out or sold to a cash position automatically after leaving your employer.
As a professional asset allocator, would you begin to adjust your equities exposure down, if you see a continued rise in US unemployment into 2024 along with, for example, company revenues and earnings "trending" down at the same time?
a banger
The plunge protection team is getting an A+ rating in 2023!
It's true that being a bit of an optimist has helped out in the past, but the fact is we're going through an unprecedented genetic and demographic shift as well as socio-cultural shifts, declining human capital outright, and things like alienation/declining social capital due to the modern economy on par with the industrial revolution. We have measures and are paying attention to things we never had in the past. You wouldn't look at Japan and be optimistic about Japanese civilization. And as previously mentioned, we're observing outright IQ declines as we've reached the height of our phenotypic intelligence and the Flynn effect. Health dysgenics otherwise is also that much worse. There's also the fact of the decline in innovation hitting all scientific fields, and the one's that are innovating the most can only do so at ever increasing cost. If you could predict the profound impact sufficient nutrition would have on people's mental faculties or the room to go in agricultural technology of the green revolution, you would not have been so doom and gloom in the past, but going forward you can be more sure about where society's headed if nothing changes. The more immediate possibility to reverse course would be another cultural revolution in the opposite direction, but that remains to be seen with mass population movement. The shifts to this point from the end of the relatively stable growth era before the internet have been immense, but people have a tendency to just go along with things and our perception, and very language, shifts gradually.
Maybe you can address the infrastructural risk someday. Maybe markets on average give you positive returns, but the problem for ordinary investors is to stay in ownership for a long time. So how big is the problem of owning a broad market for 30 years with brokers, sanctions, and changing political regimes? The market might grow, but you might lose your stocks because of fraud on the depositary side.
Like How Russian domiciled company shares delisting after Biden defaulted on Russia's USD foreign reserves.
CNBC, RUclips, the list is endless..... Everybody has been predicting a recession for the last couple of years, doom and gloom attract viewers.
Because stock returns are positive over long time periods, is it wise to invest in HEQL ETF despite the higher management fee of 0.41 versus 0.18?
Not that I’m pessimistic about the market, with fixed income investments currently yielding 5-6%, I’m not sure taking on the additional risk in equities is worth it.
Bro doesn't even blink. He wants you to follow his advice, so he just stares you down to buy low-cost index funds
To summarize -- it's better to invest while the market is in turmoil.
Did not expect to see a wojak on my feed from this channel today lol
Have you considered a glazed bookcase for all these books? From experience, books gather quite a bit of dust and are a complete nightmare to clean.
Being contrarian in long term global ETFs is always a good idea. When the media and people are scared it's time to load up. When everyone is feeling good and markets reach all time highs you can hedge with puts or inverse ETFs and stay invested or switch to bonds or cash. personally I like the hedging strategy because if you're wrong on timing you don't lose much and you're still long the market. Switching to cash or bonds is trying to time the market which is nearly impossible to do
💯
this is still a form of market timing. over the long run, if you just invest continously in global stocks you would likely have a better outcome.
Why is Buffett selling assets and amassing more cash recently?
i worry that us debt load is reaching a inflection or tipping point. Japan is often cited as the only major nation with a higher debt to gdp ratio that the USA, and the nikkei was just stangant for 30 plus years. imagine if the sp500 is the same in 30 years as today. yes, we have had a debt problem for many years, but of course it's getting worse and worse as politicians inflate and borrow away their never ending deficit spending problems. we are to the real point where the interest on the debt alone is approaching the entire pentagon budget. thats certainly unprecedented. is there some point of no return that kiboshes wall street? hell if i know. maybe.
But I dont really understand things enough to be sure at all. Tentatively I'm just going to stay almost completely in the SP 500. i think the usa stock market is unique in that the entire world, many foreign govts, dump their money in it. so it's probably an artificial bubble, but that doesnt make the gains any less real.
Look at Japanese value / small value over the same period. Some data on page 20 here www.pwlcapital.com/wp-content/uploads/2020/12/Five-Factor-Investing-with-ETFs.pdf
What should one do if they get a lump sum of money that they want to move on the market. Say 4 million and they want to move it on the market--should they do it over time or just some random day?
Just wish Canada had a brokerage that offered auto rebalancing of one's portfolio (at least on contributions).
Life is not fair. Strength, talent, psychology, upbringing, education all effect your investment thinking and style. I have an optimistic approach to investments, but as you say - most people do not. I have surely gained a lot more towards retirement than the vast majority of my peers for that simple reason. This is also why I favor European style mandatory pension schemes - they show everyone that investing matters while making them millionaires at the end of their working life - no effort involved except the delayed utility of your earnings until retirement.
I only ever invest in stocks... Although ETFs,
Which of the books in your background would you recommend the most?
Too hard to answer. Depends what you want to learn about.
Since high yield savings accounts and short term treasuries are paying nearly the historical stock 5% return you mentioned, then wouldn't it make since to shelter in those as long as they stay around 5%?
Could be wrong but I think on average it’s still better to invest in stocks
🤘
Great video!
Any day now…any day.
I clicked for Ben's hair
So basically Keep Calm and Chive On is bourne out in research.
Its odd to me that incredibly intelligent people cannot beat the index consistently. They are trying right and not just fee driven considering the huge bonuses.
....and its gone....
How would you view real world investment? I.E. Spending to go to a trade school compared to buying stocks?
Investments in human capital are extremely valuable.
If you invest in the stock market, your purchasing power will probably double every 10-15yrs… depending on the career you choose, your income might double in less than 5yrs, and the degree/specialization might cost you less than 1yr of salary… - trade school return might be many times bigger than your stock returns in the long run, and allow you to save more money across your lifespan.
@@MillerMedeiros double? Do the math
I was a security alarm technician in 2008 and 2009. I quit and went to school to start my electrical apprenticeship. Best investment of my time and money for sure.
I enjoy my work more. I make more money and I have a lot more options for employment.
To echo this, last September (2022) my ex-coworkers (I got poached by another company) and I all got a hold of our RRSP and a lot of everyone told me to stay out of the market, the crash was coming!
Instead, I saw a lot of opportunities and ended up getting over 100% increase by August this year. If I had stayed scared like my friends I would have missed out on a year where every move I made worked out between 20% and 400%, one as an example buying USD ETF just before the chip act announcement late last year. Ya when shit hit the fan in September, things hurt (-25%), but I'm still massively up and I'm already recovering what I lost in Sept/Oct.
A shift to sitting ?
The thumbnail should have a picture of Robert Kiyosaki 🤣
When you can get 5% in a savings account why risk it in the market right now?
Waiting is more tempting now that t-bills pay so much, risk free. 🤷♂️
I hear you, but also
Cash is a terrible long-term investment, even at 5% interest
ruclips.net/video/KdzOlRRHOU8/видео.html
Nice to Lex Fridman diversify his interests in content creation 😂😂😂
Felix just put a wojak in his vid what is this timeline
I wish I had seen this video in 2016...
Cash is 👑 of the flies
So...market goes up forever and ever and ever and ever?
I wouldn’t frame it that way. Risk premiums should be persistently positive.
Me in January 2023