Journalism by its very nature conceals progress, because it presents sudden events rather than gradual trends. Most things that happen suddenly are bad: a war, a shooting, an epidemic, a scandal, a financial collapse. Most things that are good consist either of nothing happening — like a nation that is free of war or famine — or things that happen gradually but compound over the years, such as declines in poverty, illiteracy and disease.
- Steven Pinker in FT "Steven Pinker: What can we expect from the 2020's?"
Steven Pinker was talking about general progress, but his comments should resonant with any market investor. Anything bad that will happen to markets will be quick, unexpected, and sudden. Any good that will happen in 2020 will occur slowly. A slight improvement in growth, an increase in earnings, or continued limited volatility.
Unfortunately, investors, like everyone, have a negativity bias. Events with a negative slant will have a greater psychological effect on investors. This negative bias applies to our attention, learning, and memory. Bad things have a greater impact on our decision-making as well as what we remember. We likely remember the large negative events over the last decade over the long-term good. Of course, we want to avoid loss but it is as important to focus on the gradual positivism that is seen in the economy and markets.
Unfortunately, investors, like everyone, have a negativity bias. Events with a negative slant will have a greater psychological effect on investors. This negative bias applies to our attention, learning, and memory. Bad things have a greater impact on our decision-making as well as what we remember. We likely remember the large negative events over the last decade over the long-term good. Of course, we want to avoid loss but it is as important to focus on the gradual positivism that is seen in the economy and markets.
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