Photo: Eberhard Grossgasteiger. Source: Pexels
As a kid, I found clouds endlessly fascinating. Their shapes and forms conjured up images of bears and dragons and all kinds of woodland creatures. My friends might see armies or sports stars. On a warm summer’s afternoon with light, puffy clouds, we could spend hours gazing up at the sky.
Images in clouds can be inspiring. In Irving Stone’s “The Agony and the Ecstasy,” Michelangelo envisions God creating Adam in a cloud formation and receives the impetus he needs to design and paint the ceiling of the Sistine Chapel. This inspiration carries him forward through many obstacles.
Scientists have studied our ability and apparent desire to interpret random images, or patterns of light and shadow, as faces, scenery, or some other meaningful experience. What we see illuminates something about ourselves. We’re hard-wired to make connections and find meaning in often unrelated items. If taken too far, this can become a problem. Amateur gamblers often see patterns in the random numbers that appear in lotteries, card games, and dice.
Lines seen as a face. Source: Wikimedia
It can be the same with markets. We often see trends, reversals, and portents of doom when there’s nothing but random noise. When the news comes out, we remember portions of what we saw and tell ourselves that we “knew” something was going to happen. But that’s just selective memory. On the other hand, some patters do persist and reassert themselves – particularly the long-term chart path from lower left to upper right that both the economy and market have taken. It’s important to keep these long term trends in mind when we invest for the long term.
US Economy and S&P 500, 1953-present. Source: Bloomberg.
As kids, we knew the difference between what was in the sky and what we saw on the ground, what we could imagine and what we had to do today and tomorrow in our lives. It’s important to remember: just because we see something doesn’t make it real.
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