Spotify’s algorithm recently uncovered a gem (to me, anyway) from my youth, adding Gilby Clarke’s “Cure Me Or Kill Me” to one of my playlists. I admit that this is not a great song, but seeing as how our musical tastes are developed in our teenage years, this track scratches an itch for me. It brings me back to laying in bed, headphones cranked too high, listening to 106.9’s Top Ten at Ten. Tremor Christ, Volcano Girls, Counting Blue Cars, Loser, Andres – all on ROCK ONE OH SEVEN WRQK, CANTON’S ROCK STATION!!!
Like our taste in music, our perspective on risk can be overly influenced by our early investing experiences. Vanguard found that Millennials who started investing with them after the global financial crisis were more than twice as likely to hold zero-equity portfolios as those who started investing before. They also found that older investors held more equities than expected. Was this because of their experience with the equity bull market of the 1980s? Or maybe it had something to do with The Bangles and Cutting Crew?
I graduated from college after the Tech Bubble burst, pretty much at the market bottom. Keeping with the music theme, this is the era of Puddle of Mudd, Nelly, and Jimmy Eat World, but before the world turned on Nickelback. Yes, I’m sure you always hated Nickelback – just like you knew Pets.com and Beanie Babies were all hype. I got to talk with real people who had money invested in the stock market every day. There was one daytrader who lost a good chunk of his portfolio in the tech crash, but wasn’t totally wiped out because he had most of his money in homebuilders. More often, I came across people just wanted CDs and said they would never invest in stocks again. I wonder what happened to these people in both cases. Did the trader get blown up in the financial crisis or did he move to bonds just in time? Did the never-stockers succumb to FOMO and buy at the market highs in 2007? Or did they keep rolling their CDs down through ZIRP post-crisis?
Hitting the job market at peak investment pessimism was a blessing in disguise. While it taught a skepticism of market hype, I also learned that the world moves on. There is always another iPhone, Netflix, or internet around the corner to disrupt and ultimately move us all forward. Experiencing two “once in a generation” market declines in one decade illustrates how difficult it is for us as humans to quantify and prepare for risk. After all, folks keep building in flood plains even after getting hit with multiple 100-year floods. Ben Carlson has a great post about if you had perfect (bad) timing and invested at market peaks. It turns out that the act of saving/investing is more important than the timing aspect.
Risk and Music
As far as risk goes, objects in the rearview mirror may appear closer than they are (this is also a terrific Meatloaf song). Our early experiences shape our perspective not only on music, but also investing. Recognizing this can go a long way in crafting a more appropriate risk tolerance. For some people this means nudging their equity exposure up a bit while others should probably dial it back. Either way, evaluating your thoughts on risk and why you feel that way is a worthwhile investment.