Have Market Anxiety? Try This Perspective Shift

In 2020, Morgan Housel published the New York Times best-selling book titled The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. He has also published Same as Ever and regularly writes a blog post. On October 14, 2024, he released a post called “A Message From the Past (Thoughts on Nostalgia)”. This article is a fantastic example of his writing style and message. As we rapidly approach the presidential election, a lot of people have feelings and anxiety regardless of political leanings. Many people also have fears about the economy, inflation, and the nation’s debt. The article will hopefully help give perspective. Please find below key excerpts from the article and a link to the full one, which I highly encourage you to read. (https://collabfund.com/blog/a-message-from-the-past-thoughts-on-nostalgia/)

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I was recently asked at a conference how investors should feel about the stock market given that it’s basically gone straight up over the last 15 years. My first thought was: you’re right. If you started investing 15 years ago and checked your account for the first time, you would gasp. You’ve made a fortune. Then I thought, wait a minute. Straight up for the last 15 years? To echo my wife: What are you talking about?

Are we going to pretend like the 22% crash in the summer of 2011 never happened? Are we supposed to forget that stocks plunged more than 20% in 2016, and again in 2018? Are we – hello? – now pretending that the worst economic calamity since the Great Depression didn’t happen in 2020? That Europe’s banking system nearly collapsed? That wages were stagnant? That America’s national debt was downgraded? Are we now forgetting that at virtually every moment of the last 15 years, smart people argued that the market was overvalued, recession was near, hyperinflation was around the corner, the country was bankrupt, the numbers were manipulated, the dollar was worthless, on and on?

I think we forget these things because we now know how the story ends: the stock market went up a lot. If you held on tight, none of those past events mattered. So it’s easy to discount – even ignore – how they felt at the time. You think back and say, “That was so easy, money was free, the market went straight up.” Even if few people actually felt that way during the last 15 years.

So much of what matters in investing – this is true for a lot of things in life – is how you manage the psychology of uncertainty. The problem with looking back with hindsight is that nothing is uncertain. You think no one had anything to worry about, because most of what they were worrying about eventually came to pass.

“You should have been happy and calm, given where things ended up,” you say to your past self. But your past self had no idea where things would end up. Uncertainty dictates nearly everything in the current moment, but looking back we pretend it never existed. […]

Part of the reason nostalgia exists is because, knowing what we do today, we often look back at the past and say, “You really didn’t have much to worry about.” You adapted and moved on. Isn’t that an important lesson as we look ahead?

Understanding why economic nostalgia is so powerful – why it’s almost impossible to remember how uncertain things were in the past when you know how the story ends – helps explain what I think is the most important lesson in economic history, that’s true for most people most of the time:

The past wasn’t as good as you remember. The present isn’t as bad as you think. The future will be better than you anticipate.