“Photo: Latham Jenkins. Source: Flikr. CC-BY-2.0”
40 years ago, Joni Mitchell wrote “The Circle Game,” a lyrical song about carousels and a young man’s gradual coming of age. The most memorable part is the refrain, which goes: “We can’t return, we can only look behind from where we came / and go ‘round and ‘round and ‘round in a circle game.”
Circles and cycles are part of investing. The economy cycles through growth and recession every 5 to 10 years; businesses magnify any economic decline into a significant profit downturn; and investors take those business losses and run with them, bolting for the exits and causing manias and panics in the process.
The economy doesn’t decline that much. We still need to eat, sleep, and heat our homes no matter what our mood happens to be. Corporate leaders don’t just take the ball and go home, either. They measure their progress against the plan and manage by the numbers, not their feelings. But there are no checks on the swings of investor psychology. Investors are the classic manic-depressives – alternately crazy bullish and despairing – driving prices along with them. Most investment risk doesn’t come from the economy or the business cycle, but from investor psychology. And that’s where Joni Mitchell’s song seems so timely.
This has been perhaps not the most hated bull market in history, but a bull market with extremely reluctant investors. No one trusts it. The market’s movements have been blamed on the Fed, on Bush, attributed to Obama, and claimed by Trump – or disclaimed, depending on the market and the mood. But investors have profited over the past ten years as the economy has climbed out of the financial crisis. Now, with the latest pullback, the bears have come out of hibernation and they’re hungry.
Photo: Kaitlin Toresen. Source: NPS
Remember: there are seasons and cycles to everything. Investing isn’t about predicting the future. It’s about expecting – and preparing for – the unexpected.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”