Something to Believe In

Mitch Anthony

I was on the phone the other day with an advisor who sounded discouraged over how to build hope and confidence in clients during these troubling times. He said, “It’s hard to know what to believe in anymore.”

Fair enough. Standard assumptions like asset allocation are being called into scrutiny. What were once inverse ratios are suddenly correlated––all in the wrong direction. What’s a guy to do? What does he tell his clients they can count on?

Before a broad epidemic of investor nihilism sets in, let me remind you of something we can all count on at all times: people who are scared do stupid things. This is something I believe in more than ever––and there is manifold opportunity tied to this belief. The old George Carlin line comes to mind: “Think of how stupid the average person is, and realize half of them are stupider than that.”

What is it that makes people stupid with money? The sound of the herd, plain and simple. The mob mentality. The noise that scares them into panicky decisions that they later wish they could take back. They listen to co-workers and brothers-in-law and hyperventilating anchors on the Panic News Network. The cacophony of fear becomes a stirring rumble––and eventually a thunderous, roaring stampede, where everyone is running as fast as they can.

And they don’t even know where they’re headed.

And who or what are they following? If they would look up for one second, they would realize that they are following…someone else’s hind-end.

There is no voice speaking from a cloud telling them to run. There are no sure signs of apocalyptic doom––only the sound of the herd and the fear of being left behind.

Case in point: not long ago the herd ran as far and as fast as possible from tax-free municipal bonds…the end of cities as we knew them was upon us. And why? Because the Panic News Network said so, and the wailing Wall Street Journal said so. What was one of the top performing categories––if not the top performing category––in the first quarter of ‘09? You guessed it––tax-free municipal bonds. Some people understand this important, infallible principle: Scared people do stupid things.

Look around you. Cities are still standing. Most of them even continue to pay their bills. As far as I can tell, we have not reverted to a nomadic culture. Your local tower of Babel has not been leveled. We will survive. We always do.

People are talking about the failure of capitalism. People are talking about how capitalism has let us down. Has capitalism failed us, or have we failed capitalism? Has it let us down, or have we let it down? Sure, we had to save some big ships that were going down, and to do so, crossed out some key lines in the capitalistic creed. It is not capitalism that failed here but our unwillingness to let it play itself out. Not until many years from now will we know if we did the right thing.

It is a mistake to throw out what we know to be true simply because we created a crisis by ignoring common sense. When fear and greed run abated, opportunity is created––the opportunity to show our clients our mettle. Fear is out of the corral at this moment and opportunity surrounds us.

We need to reinforce our commitments to our clients and help them understand that they have the opportunity to get back into the markets and potentially reap some pretty big rewards. We may not see such opportunity again in our lifetimes.

Smart advisors know that their first responsibility is to help clients understand and perceive what’s going on, and advise them how to take advantage of it. Ask them:

• “Do you believe that people do smart things with their money in a panic?”

• “Do you believe that when people are afraid and decide to hide in a cave, that they might be missing out on some good opportunities?”

During times like these, capitalists capitalize. They capitalize on what fear leaves behind. They capitalize on the fact that people no longer believe capitalism works. They capitalize on what panic leaves behind. They capitalize on the fact that everyone is following someone else––and leaving opportunity behind them. They invest. They invest. They invest.

Let’s not be so quick to throw out the baby with the bath water. Capitalistic thinking created this great culture, and it will certainly play the leading role in restoring our markets.

Good ideas and hard work still lead to profit. Do you believe that? Companies that exercise common sense and refuse to mortgage their futures, survive and thrive. Do you believe that? Most people are too afraid of being out of step with the herd to stop and examine the difference between a failed investment and a failure to invest.

If you know that the herd is foolish…if you know that people don’t think clearly when they are afraid…if you know that human nature does the wrong thing at the wrong time…then there is only one smart response to choose: Capitalize on that knowledge, and help your clients do the same.

Contact him at mitch@mitchanthony.com.

© 2008 Mitch Anthony