Dealing with ‘professional bears’
There are many pessimists in the investment world – those who are constantly expecting global markets to collapse. What can we learn from them?
last weekend I met a professional bear. No, not a bear like you’d find in a zoo, circus or out in the wild – I mean a market bear; somebody who thinks the market is just one moment away from a complete collapse that will result in the end of financial markets. Most specifically, this is someone who has been thinking and talking about this for close on 15 years, hence the “professional” part.
This got me thinking about a lot of things. First, I call him a professional bear as he has been bearish since 2002 and everything he ever writes or says is bearish. He has never issued a buy recommendation, except for gold – but more on that later. He has spent his entire life as an investor predicting the end of the world, and so far, he has been wrong. Sure, there was the 2008/09 global financial crisis when he was right for a while, but only partly right as things got better in the end. He has spent the past eight years since the end of that crisis saying that it was just the warm-up and that even worse market crashes are coming.
Now, of course, you may recognise that in essence I am a “professional bull” in that I am pretty much confident about markets. Sure, they collapse every so often and the crash in 2008/09 was a bad one. But over time markets move higher and we have plenty of evidence for this statement. Taking it a step further, markets move higher by design. Inflation helps companies improve profits and hence share prices, the loser stocks go bust and/or exit the market while the new winners rise to the top. There is a built-in bias for markets to move higher over time.
But none of this discourages our professional bear. He writes books that have a large and eager market. He goes on TV telling anybody who’ll listen about the dark times ahead. And, of course, he is telling everybody to buy gold. But he is totally mistaken about gold. During the 2008/09 crisis, the yellow metal went down as the panic caused everybody to sell everything, even gold. Sure, it did finally move higher and peaked in August 2011. But as an investment, gold has been modest at best; horrid most often.
My comment to him is that if the end of the financial world were to erupt, surely gold would also be useless. Who wants heavy, hard yellow stuff to carry around? Value would be in water, seeds and maybe guns and ammunition. Services would also be useful, people who could fix things, grow things and make things. This could all be bartered for food or shelter. Nobody would need gold.
The point of me relating this meeting is that he is but one of many professional bears. There is an entire industry that operates on such doom-and-gloom predictions. Occasionally they are right, such as in 2008/09. But generally, they are not.
Our best response is to let them buy us a beer or coffee, listen to their story and then do nothing. The professional bear always sounds scary and is always convincing, but they are also always wrong in the long term.
So, do not model your portfolio on the advice of a professional bear. Do not sell everything and move into cash or gold because a professional bear scared you. Remember, markets move higher over time and while they do crash every so often, nobody has a track record of accurately predicting a crash. Calling a crash every day and then when it eventually happens claiming you were right, does not make you an expert in calling crashes. It makes you a professional bear. ■
Do not model your portfolio on the advice of a professional bear. Do not sell everything and move into cash or gold because a professional bear scared you.