At Christmas, we enjoy reading familiar stories and watching favorite movies as part of our annual family tradition. Watching Will Ferrell in ELF for the millionth time marks the official start of Christmas for the Yakel clan.
As humans, our brains are wired to crave stories—good, bad, heroes that rise above all odds to succeed…in Jonathan Gottschall’s book, The Storytelling Animal, he explores how much humans seek out a good story—both as listeners and as storytellers themselves.
It is this storytelling instinct that often makes investing so darn hard. As famed economist John Maynard Keynes once said: “Investing is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.” Investing done well does not make a good story—it is actually pretty boring…diversify, rebalance, repeat. As Nathan’s blog said last week, “Unfortunately, headlines such as, ‘Long Term Investor Enjoys Solid Returns’ really don’t exist nor would they generate the attention desired!”
So instead, in our search for a good story, our gambling instinct takes over. Hence odd bubbles like tulips, Beanie Babies, gold, Bitcoin, and the latest…cannabis. On sheer speculation of legalization of marijuana, the market value of Canadian marijuana company Tilray Inc shot past the total market value of American Airlines, Tiffany, and Campbell Soup:
Tilray traded near $215/share before falling to $65/share in less than 90 days.
In this great article from Tech Crunch, the phases of a bubble are outlined:
Mania, greed, delusion, denial, fear, despair…all sound like great makings for an awesome story!
Added to our desire for a good story are basic behavioral biases of the human mind:
Hence the difficulty in staying the prudent course of investing—it is so easy to get pulled into the mania on any given bubble. Enter Meridian…we work hard to help our clients see the stage clearly and avoid bubbles so they can be the hero of their own financial story!