Have a look around the web — even when it isn’t Halloween — and you will see headlines that seem to be designed to frighten investors:
“These Are the Scariest Charts…”
“3 Reasons Everyone Is Spooked…”
“Fright Night at the Stock Market”
“Inflation Fear Fuels Bond Rout”
“Fear and Uncertainty in Cattle Markets”
These clickbait headlines should be little more than a distraction to investors.
But they lead us to an important aspect of markets: What do investors fear — and more properly, what should they fear? Let’s look at some of the more common fears that now haunt Wall Street traders. Here is my top 10 list:
No. 1: A (fill-in-the-blank) administration. Someone is going to win this election, and whoever that person is will be disliked by about half of the country. So what? It won’t matter to your portfolio unless and until that person makes a horrible mistake, like an expensive, protracted, unnecessary war.
It bears repeating: If you allow your politics to interfere with your investing, you are likely to be disappointed by both.
No. 2: FOMO. Fear of Missing Out, originally a millennial meme, often stoked by social media, that somewhere someone was having more fun than you. It has since morphed into the portfolio manager’s concern that there is a sector, asset class or investment that they are underexposed to that is going to be this year’s big winner. Long treasuries (until a few weeks ago), junior gold miners, emerging markets, housing, short volatility, REITs – to name just a few investments that lots of managers seemed to miss.
No. 3: Underperformance. This is the big one. Trillions of dollars are invested based on the promise of outperformance, and billions of dollars in fees ride on the investing outcome.
The simple truth is that most traders and investors won’t outperform their benchmarks over the long haul. The few who do well deserve their outsized compensation. Unsuccessful alpha chasers should be preparing themselves for what inevitably will happen in a transparent meritocracy.
No. 4: Recession. A recession is coming! A recession is coming! Economies are cyclical, so of course a recession is coming — there is always a recession coming. Here is a clever idea: Just stop worrying about it.
No. 5: A less accommodative Fed/higher interest rates. Gradual rate increases, especially from very low rates during a period of subdued inflation, haven’t proven to be a negative for equity prices in the past.