Poe wrote the original Pit and Pendulum. And it has lessons for investors today.
Poe set his story during the Spanish Inquisition. The narrator doesn’t explain why he’s there. He is sentenced to death and undergoes elaborate tortures. At the moment he falls into the dreaded pit he is pulled to safety by French invaders who have just taken the city.
It is a study of the effect of fear. The narrator communicates his fear quite well, for all the fact that we already know that he survives—after all, he’s telling the story. Poe’s writing is effective because he’s so realistic. And fear is a great motivator. It pushes the narrator beyond his limits—and beyond ours, as we read.
Investors deal with their pits and pendulums all the time. There are aspects of investing that seem like slow torture. We’re now seeing the steady erosion of purchasing power by moderate inflation, forced on investors by the Fed’s easy money policy. Others evoke the horror of 2008: references to a possible Greek default always seem to mention Lehman. Finally, everyone seems to be looking for a redeemer: a German bail-out of Greece, a Chinese bail-out of Europe, or some other rescue.
But one of the enduring lessons of investing is that there often is no white knight. While a rescuer is welcome, the pits we encounter are often of our own making. When we face our fears, we often find that they are less terrible than we imagined.
Douglas R. Tengdin, CFA
Chief Investment Officer
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