Interestingly enough, we may not even be aware this is happening.
The last time I purchased a new car, seemingly out of nowhere I began to see the same car I just purchased everywhere. Magically my new car was much more popular than I previously realized.
This phenomenon is powerful and is working behind the scenes all the time.
Major events in our childhood, recent circumstances, education, relationships, our mental and physical health have meaningful impacts in how we filter, and thus how we see the world around us.
How many people do you know that think investing in the stock market isn't much more than gambling? Or people that think gold is the only true store of wealth. Or people that feel the complete opposite.
What is risky to one person, is considered a good time for another.
Understanding how you view the world and why is extremely powerful in gaining an understanding of why you make the decisions that you do.
The charts below, show all the same data, however, they represent how people might feel dramatically different while experiencing the same events. People will feel differently while the market is going through its gyrations over time. Some see risk, others see opportunity.
The first two charts (respectively) show both bull and bear markets since the late 1950's but the y-axis of the two charts is not in the same scale. This is how some people might feel. The impact of losses is more powerful in relationship to gains.
The chart below is more representative of the market during both bull and bear markets (same scale), but doesn't give the full picture as to what the market has achieved since the late 1950's.
The chart below is the price return of the stock market over the same period of time.
Same chart as above, now in log scale.
How do you view the market and why?
-Paul R. Rossi, CFA