Much has been written, particularly by Joseph Miller and before him, Carl Jung, illustrating how classic mythology remains at the very foundation of our psyche and consequently can influence our everyday lives and decisions. Strangely, the tale that I have been reminded of recently that speaks to the psyche of so many investors and is overwhelming current decision making is the tale of Chicken Little.
If you recall the story, Chicken Little is hit in the head with an acorn, comes to the conclusion that the sky is falling and must tell the king. Along the way, Henny Penny, Ducky Lucky, Goosy Loosey and Turkey Lurkey join the panic and rush to see the king. Unfortunately they all share an unfortunate fate at the hands of Foxy Loxy who lures the band into his den and to their demise. (depending on which version you are reading!)
In recent months the comment that I have heard the most is that there is no way out of the mess we are in now, whether it be the debt crisis, banking problems, unemployment, political deadlock or the crisis in Europe. Invariably the conclusion is that the markets are headed for utter disaster or to say it better, “the sky is falling!” Nearly everyone, from commentators to politicians to everyday people, seem so easily to accept this premise and almost giddily want to pass on this horrifying news.
In fact, what my experience has been is that the sky so often seems to be falling in the minds of investors. All problems appear especially unsolvable when the market is falling precariously. Even when it rallies, the cries of false hope tend to urge investors to not be tricked by the temporary market surge. It is interesting that there seems no memory of the collective unconscious and that this keeps repeating time and time again. Whether it be the banking panic in 2008, the technology and subsequent market collapse in 2001, 2002 accompanied with terrorism fears, Year 2000 warnings, the 1991 banking collapse, the 1987 crash, the 12% inflation and oil crisis of the late 1970s, Cuban missile crisis, Pearl Harbor, Attila invading Europe, and we can keep going to the dawn of time, they all felt like the sky was falling.
So, given all the fear that is constantly surrounding us, perhaps you may ask, what’s wrong with assuming the worst that the sky is falling? The answer, I believe, lies back with the story as we reflect to what happened to Chicken Little, et al, and there are a couple of lessons we can all learn . Not only was their attempt in vain as the king could not help even if the sky was falling, but worse, in panic they only met their fate at the hands of Foxy Loxy.
How do we apply this to managing our money? I suggest that there is no real practical strategy to the sky is falling scenario. Buy Gold? Who will buy it from you? Buy Treasury Bonds? There may be no faith in American currency? Buy CDs? If there is no faith in our currency, no one will protect our banks either. This logic really applies to all assets if you follow this line of logic. So since there is no protection we can actually just throw this realm of possibilities out of the equation. This doesn’t mean we can’t plan for Bear Markets and troubled times but when those times occur we don’t have to fall prey that they will be the end of us but rather we can actually step up and make some brave decisions to help ourselves. Indeed, history has taught us so far that, somehow there really is light at the end of a dark tunnel.
If we do fall prey to the sky is falling scenario the risk is that we will make very poor decisions at the time we really need to be calm and be more positive. And from my experience, making a poor decision at the bottom of a market usually causes one to make an equally poor decision by getting too optimistic at the top of a market. Whereas fear at the bottom of a market results in missed opportunity, optimism at the top of a market causes real losses. Those losses will indeed make us truly feel the pain of Chicken Little at the hands of Foxy Loxy. So let’s try to choose a different story for our lives. Perhaps Beauty and the Beast, where at least we learn to deal with the worst, shred our old skin, and it has a happy ending!