It came to me in a dream, or maybe it was a nightmare. According to Richard Leakey, the paleontologist, in his book “Wildlife Wars,” we humans, in one form or another, have been around for 4 million years, give or take. He should know, since he is as famous for prowling around the African landscape and discovering our ancestors, buried in rock and dirt, as were his parents.
By my calculations, we have been investing in what I would charitably refer to as the modern stock market for just over 200 years, although the market in 2012 is certainly not like anything that was going on in 1792, when the New York Stock Exchange was founded. (Yes, I know about the tulip bubble and all, but I wouldn’t categorize one-item buying and selling as a “stock market.”)
So, it is clear that we behave badly in the investing world, buying high and selling low. Maybe the reason is purely mathematical. If you divide the 220 years we’ve been investing by the 4 million years we’ve existed, you get 0.01%.
This means our instinctual behavior is based on 99.9% of our history (running from tigers or screaming at other members of the tribe about an oncoming fire or flood), and that our chemical reaction to bad news overwhelms our 0.01% instinctual experience in investing. Is it any wonder we are, in the main, bad investors?
The media feeds the 99.9% part of each of us (except for Mr. Warren Buffett and a handful of others, men and women who have trained themselves to be reflective about herd behavior, panic and fear and who don’t react as emotionally as most of us do) by shaping the news to spread shock, disgust and fear constantly. Instead of news happening once daily in the newspaper or on the news at seven — it spreads, via the Internet, moment by moment and person by person, keeping us in a more or less constant state of agitation. And the folks who run media empires know how to cater to this human emotionality: some stations run more or less “kind of” news/opinion programs most of each day and evening, and so TV and other media now change information (and excite us, keeping us plugged in) in minutes and seconds, not days.
When it comes to investing, what’s crazy would be us acting in any other way than poorly. We are trained by millions of years of history, genes and inbred behavior to react in certain ways. Investors smart enough to go the other way, buying when the rest of us, in a panic, sell, usually do well.