Behavioral Finance

You’ve Got a Weight Problem

Your brain is making you anxious and that could be weighing down your portfolio.

I bet you have a weight problem. How do I know? Read this:

"Wherever we see an increase we feel its weight. All the numbers going up no longer portray the optimistic spirit, but instead indicate monstrosities, epidemics, ugliness, future disaster, extinction. Growth has taken on a cancerous tinge. To use the word now sends a message of potential danger, whether the growth be in debt, the population, the underemployed, the homeless, the dimension of cities, the size of government, the particles in the air, the tax rate, the cost of living, the cholesterol count, even the rising numbers on the bathroom scale. Going up now means decline. What was before the measure of progress has become a sign of problems." *

Have you ever felt this way? I'll bet so. My guess is we've all felt the weight of the world's ills at one time or another. And it's particularly true today. 

In the last year, I've spoken with thousands of investors across every nook of this country. Particularly that last bit, "What was before the measure of progress has become a sign of problems," describes the way most investors feel today. Here we are in November—global stocks up +70% from their March lows, the global economy returning to growth—and the higher we go, the more anxiety we seem to feel.

I can't find many forecasts for a truly optimistic future. Even today's bulls seem to generally believe a rebound is temporary, and we're really on the way to a broader decline or prolonged general malaise. Rising numbers seem, bizarrely, to no longer indicate recovery, but instead a new "bubble" that must eventually pop.

True, the shock of the financial panic has waned, but it has been replaced by a nebulous, less immediate, heavier kind of anxiety. Just weeks ago these two books were released almost simultaneously—one from a noted liberal, the other from a noted conservative:

Anecdotally, this tells you today's anxiety (at least in part) isn't an ideological problem—it's agnostic to ideology; it's psychological. We can scarcely see a brighter tomorrow, let alone in the distant future. In some cases (as with Ms. Ehrenreich), we don't even want to.

This has major investing implications, and isn't totally your fault. It's half your brain's fault, half Modernism's. Don't groan: I realize Modernism's been tortured in turgid analysis by every half-wit intellectual with a degree. So I won't do that here except to point out two features: Increasing complexity and size. Both mess with your mind and can increase your weight problem. 

In my book, 20/20 Money, I detail the nature of Complex Emergent Adaptive Systems (CEAS) and how they help us understand everything from the weather to capital markets. Increasing complexity in a dynamic, free market economy (most of the world today) means more interconnectedness, faster and better information, greater efficiency, and, importantly, greater size. These are tremendous things, creating wealth and raising prosperity throughout the world faster than any system ever conceived. But our minds tend to hate it.

Why? The Industrial Revolution exploded our scope—we began collectively realizing we were one of billions in a gigantic world—hence Modernity and the questions of meaning and hyper self-consciousness. (Contrast that to the pre-enlightenment era, when all we knew was our own little village and our own local religion.) In the industrialized world, we could never hope to understand everything—we are small, out of control. Loss of control is like a mental anxiety engine, and so in high anxiety times politicians look to capitalize by offering "regulation" (today, everything from financial firms to energy consumption to health care). We want our "control" back.

The sheer size and scope of today's world also breeds angst. How does one envision a "trillion" of anything? How can the global economy actually grow given how large it already is—$35 trillion!? It'll ultimately collapse under its own sheer weight, won't it? It just seems…too big. They all seem too big: the budget deficit, trade deficit, government debt, money supply, stock market, bond market…all too big and thus bad.

Tack on the reality of information flowing more plentifully and faster than we could ever hope to consume, and we find ourselves in a high anxiety pressure cooker. 

The brain wasn't made for this, and the result is excess anxiety. Shedding pounds of mental baggage isn't easy, but it's necessary for investors to see the markets clearly. This isn't some contrarian mumbo-jumbo. Successful investing is expressly about separating perception and emotion from objective reality. Now's a time when sentiment is far out of whack with reality.

No one is arguing the world's a wonderful place today, but the notion "we are doomed" is silly. The weight problem tends to accentuate itself after every recession and/or bear market, and it's one of the reasons many investors get left behind as new bull markets begin. Worry is one of the most potent mental instincts and often disallows investors from believing in a recovery.

Generally, by the time we feel good the bull's already stampeded us. Investor anxiety tends to linger throughout bulls. It's only at bull market endings folks usually become overly optimistic—hyper-optimism is exceedingly rarer than general worry.

The simple fact is the world is poised to regain its former trajectory of growth and continue moving ahead—bigger, more connected, and faster. (If you don't believe it, read MarketMinder's daily cover stories on the continuing global economic and capital market revival.)

Neither the pace of economic/societal development, nor our minds' reaction to it, will change anytime soon. So as investors, we'll be dealing with excess mental weight pretty much forever. The ability to transcend it is vital to better returns.



*Hillman, James. Kinds of Power: A Guide to Its Intelligent Uses. New York: Doubleday, 1995. pp. 47.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.