Perhaps you will recall a well-known novel, Animal Farm, written by George Orwell, that is a classic about animals living together in a hierarchical society. There is an interesting connection in this book to our financial world today. In 1945, when Orwell penned his classic, he probably didn’t have this connection in mind.
In fact, animal behaviors likened to stock market behaviors is commonplace. Most of these go back decades. And it’s not just bulls and bears. Bulls are envisioned charging and thrusting their horns upward. Bears are seen as pessimistic, sedentary and slumbering. Thus, we get the ‘bulls’ and ‘bears’ of the market. We thought it would be interesting to take a light-hearted look at these animal behaviors to see how they reflect investor personalities and the market itself.
And, now seems like a good time to step back and see what market activity is exhibiting today. As stocks plummet and investors run scared, it seems the only energy in the market today is fear. Probably a chicken or a squirrel best illustrates this behavior, so let’s take a look at them this week.
Chickens are usually scared and fearful. They have no specific plan, driven by the fear of losing what they do have. So, this behavior labels risk-averse investors. They don’t like taking much risk in their investments. Chickens invest conservatively into government bonds, government securities or bank deposits. And, of course, loss in the market will send them running around like “a chicken with its head cut off”. Chicken Little appropriately comes to mind.
Or, take squirrels. We’ve all seen them in the road, scared to death, running back and forth. Decisiveness is definitely not their strong suit. And with the media fanning the flames of fear from all directions, we can see how this only feeds the frenzy. Investor behavior today looks a lot like squirrels in the road in wild swings out of, then back into the market.
Of course, the Corona Virus is triggering all this today. In 2008 it was the collapsing housing market and monster bank failures. Yet, those who remained invested through the chaos have ridden the longest bull market in US history.
The lesson, of course, is that successful long-term investing requires a strategy for getting through downturns and enormous discipline for staying the course. The market has been going up and down – on its way up for centuries. When this stops capitalism will have vanished and it won’t matter what you own for exchange. Until that time, the stock market with all its ‘animal’ participants has been the long-term winner over other assets.
Have a great weekend!