“It’s Jake from State Farm….”
By John Lui – December 2014
It’s 3am and a wife sees her husband whispering into the phone. Any normal person would suspect something is not right. Just like the wife in the State Farm commercial, investors are suspicious about this current bull market. Surely there is something not right! Having the perspective of being a portfolio manager and a business development officer that regularly meets with clients/prospects, I can see firsthand that investors do not believe in this bull market. Welcome to the “Jake from State Farm” bull market. So, why are investors so suspicious about this bull market?
A big part of it has to do with anchoring, a behavioral concept which I have written about in my “Anchors Away” piece. In anchoring, individuals anchor their thoughts on a past experience (usually negative) even though it may not be pertinent to the current situation at hand. So bearish investors focus on a specific negative event like the financial crisis of 2008 where the equity markets dropped significantly and they refuse to invest in the equity markets again.
Another reason for the lack of faith in this bull market is the 24/7 media that values more hysteria than editorial integrity, which I have highlighted in my “Keep Calm and Carry On” piece. So the media in its financial desire for ratings/profits is pursuing fear-based news. From the Japanese tsunami/Fukushima nuclear accident, BP Gulf of Mexico oil spill, Ebola and now cheap gasoline, the media momentarily sensationalizes a news item for profit rather than to educate its viewer constituents. Investors become very fearful to invest for their future with this constant stream of negative “Breaking News”.
In order to gain the conviction to invest for your future and overcome anchoring and the mediaʼs fear mongering, you will need to understand how your portfolio is constructed. There is no better way to do that than to speak/meet with your portfolio manager. So just like the Jake from State Farm commercial, you should reach out to your portfolio manager to speak/meet about your investments. Rather than a 3am call, let’s have lunch.