Focus on the Next Crisis — Not the Last One . . .

“You still have an investment culture that’s still too heavily steeped in the most recent experience rather than rationally basing it on the evidence of the day. We had such a terrible crisis of ‘08,’ it’s not surprising to me that the first slowdown of the recovery brought back deflation-depression mentalities with vengeance.”

-James Paulsen, chief investment strategist Wells Capital Management


Once again, we see that investors have been thwarted by their own flawed wetware

James Paulson almost gets this right, commenting indirectly about the Recency Effect. Its not the Culture that got this wrong; rather, it is the flawed wetware that everyone carries around within them that keeps them focused on what just happened, rather than what is about to happen.

At least the Wells Capital (aum = $342 billion) strategist understands the impact on psychology of what just happened; the various strategists and economists cited by Bloomberg appear overly focused on the recent past, while potentially ignoring the near future. (You Humans make me laugh!)

Here’s Bloomberg:

“Investors who heeded warnings about falling home sales, record European budget deficits and the debasement of the U.S. dollar can nurse regrets after the 2010 bear market didn’t happen.

The Standard & Poor’s 500 Index has gained 9.8 percent this year and 20 percent since hitting its 2010 low on July 2, defying pessimists from Robert Prechter to Albert Edwards and Nouriel Roubini, who expected an economic slowdown that hurt equities. Bulls, who looked like losers when the benchmark gauge for U.S. stocks fell 16 percent between April and July, were vindicated by the rebound that added $2.6 trillion in value.”

The bottom line for investors: To be successful, it helps to learn to recognize the differences between inputs already reflected in the economy and markets, versus those that have not had their impact yet. Housing, credit crisis, crash, recession have already worked through the markets.

Focus on the next crisis — not the last one . . .


Bear Market That Wasn’t Gores Pessimists Amid Rebound
Whitney Kisling
Bloomberg, Dec. 6 2010

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