Stock investing and the fear of flying

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Rick Ferri
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Stock investing and the fear of flying

Post by Rick Ferri »

I'm writing an article about the fear of stocks and would like your input. Here's my introduction:

The fear of flying is different than the risk of flying. The fear of flying is an anxiety disorder whose source often has little or nothing to do with the actual risk associated with flight. Statistically, flying to a distant destination is much safer than driving a car. If you want to live longer – fly more and drive less.

Many people have difficulty investing in the stock market because they have an anxiety similar to the fear of flying. Perhaps they believe something bad will happen to their money even though in the long-term a diversified stock portfolio has never lost money. US stocks have always recovered from bear markets and eventually move to new highs. It's happening now!

Here is my question to the Bogleheads'.

Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?

Thanks for your response.

Rick Ferri
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BlueEars
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Re: Stock investing and the fear of flying

Post by BlueEars »

Rick Ferri wrote:...(snip)...
Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?
I'm a long time equity investor. I would add one word to the sentence: There hasn't been any real long-term risk yet.

On the other hand, the 1930's on into the WW2 years were kind of long term. If you are retired, they seem pretty long term.

I think such an article should tackle the fear issues as direct as possible. Analogies like fear of flying seem kind of unnecessary.

Added: A long time ago you wrote about a couple at their annual financial planning meeting in the 1970's and how they would need to rebalance into a bad market. That seemed to catch the fear aspect. Maybe this could be done for the 2000's era ... or the 1930's which was really hairy rebalancing.
Last edited by BlueEars on Wed Dec 04, 2013 11:14 am, edited 1 time in total.
garlandwhizzer
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Re: Stock investing and the fear of flying

Post by garlandwhizzer »

I think your point is an excellent one. People tend to use logic and rationality not to actually arrive at their decisions, but to rationalize them after they've been made. I believe that emotions drive most decisions, investment or otherwise, and that fear, be it rationally based or not, is for most people a consistent and powerful motivator. Fear of loss often mentally outweighs hope for gain.

I totally agree with your premise and with the historical fact that all bear markets in stocks have eventually recovered and gone on to new highs. It seems so simple and obvious: buy low, sell high, but the fact is that many, perhaps most investors, often do just the opposite. I believe it's very similar to fear of flying in your example which again is not logical and rational, but very common.

This is essentially Shiller's point of animal spirits, the reason why he won the Nobel Prize. Ironically the prize was shared with Fama who differs on this question and believes the market prices securities rationally. For the market as a whole there is always a conflict between the EMH and animal spirits, sometimes one rules, sometimes the other. But for individual investors, I suspect animal spirits often take the upper hand. To be maximally effective investors, an important step is conquer our emotions and listen to the soft voice of reason that often gets lost in the screaming at market extremes.

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Re: Stock investing and the fear of flying

Post by fposte »

Heh. As somebody with a well-managed flying phobia, I find this an excellent comparison.

A good example would be a term that we use for both market and flight: turbulence. The knowledgeable flyer/investor understands that bumps are to be expected and, if you're properly secured, rarely genuinely risky. The fearful flyer/investor takes every bump as the sign of a systemic failure that will lead to personal doom.
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Re: Stock investing and the fear of flying

Post by richard »

Rick Ferri wrote:Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?
Many countries have experienced long term drops in stock markets.

We don't have enough data. There are about 100 years of more or less reliable data. If we're trying to project 30 years, that means we have fewer than four data points. That's not enough. Worse, relevant conditions are likely different than they were 100 years ago, meaning we have even fewer data points.

The pricing of options shows the market does not believe risk decreases over time.
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Re: Stock investing and the fear of flying

Post by Grt2bOutdoors »

The key is the definition of long-term. Most people who invest say they are in it for the long term, if you were to research the data I'm willing to bet that the average investor (speculator) definition is anything more than one day and less than three years. I've been investing for over twenty years - that's right, I've held most of my investments for very long periods of time through thick and thin, up and down and sideways or what others call "flat" performance. My definition is similar to Warren Buffett's - if I buy and the stock market closed up for 100 years, I'd have no problem with that (my heirs will inherit was is left :) ), the average person believes in the short-term view - what is it worth today, I want to spend it today, I need to get out of the market today, Jimmy Cramer said sell, let me be a lemming and do as told :oops: . Instead of, what it could be worth tomorrow, what new democracies are going to become the consumers of tomorrow, what does Jimmy Cramer know, etc.
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Re: Stock investing and the fear of flying

Post by lucky3 »

Rick:

You probably could sum it up in three words.....loss of control!

A passenger in a plane experiences anxiety over turbulence because he's not flying the plane....loss of control!

An investor may not go for equities and remain in fixed income for the same reason....loss of control!

Both examples are not based on truth, but merely insecurity and fear.


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Re: Stock investing and the fear of flying

Post by IlliniDave »

I think its lack of control. All things being equal I prefer to drive rather than be flown because I control the car but not the plane (and I can wear my shoes all the way to the car). On an ongoing basis, stocks' unpredictable volatility clearly amplifies a lack of control of outcomes by the investor. "Safer" things like bonds that have more predictable outcomes offer at least an illusion of the investor being in control. It's immediate and interferes with being able to think 30 years ahead.
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Re: Stock investing and the fear of flying

Post by gwrvmd »

Rick:
A lot of it has to do with the language used. If you don't know anything about investing then :
When you hear the "Stock Market crashed" , you assume those people involved lost all their money
Peoples retirement funds went down....you assume permanently
I lost money in 2008.....you assume permanently
The market is volatile.....that means it goes down, people don't realize half of volatility is good: it goes up.
Volatility is good, if there was no volatility the market would never go up
Since long term the market goes up that means volatility is good (Good luck selling that one)
The market is risky: That means you lose money
When the market goes down money people sell "Because it may crash like it did in 2008 and everybody lost their money"
People equate risk,volatility and crash with permanent loss of money
Stories of people permanently loosing their money in 1929 irrationally effects peoples thinking today. During my investing life
the market has gone up over 1000%, I don't think I have any friends that would believe that......Gordon
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Re: Stock investing and the fear of flying

Post by staythecourse »

I think Mr. Ferri has already given excellent descriptions of how one approaches investing. I believe, in "AAAA" he mentions folks either invest in possibilities or probabilities. Folks investing approach either invest within 2 S.D. results (probabilities) or >2 S.D. events (possibilities). Look at this site itself. When stock investing is discussed folks bring up 3-4 instances in GLOBAL HISTORY it has not worked. So they look at 3-4 instances out of 100's of rolling returns and basically decide what happens in the very small minority is MORE important then what happens in the other 100's of other time.

Nothing wrong with investing in possibilities (minority of outcomes) or probabilities (majority of outcomes), but one needs to accept NOT investing in stocks for the long run is actually betting HEAVY against history AND financial theory.

Good luck.

BTW, I believe it was Taylor who mentioned maybe the better way to approach is asking "what will I do if the minor possibility actually becomes for real".
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Re: Stock investing and the fear of flying

Post by Kosmo »

Rick Ferri wrote:Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?
Because people have a hard time thinking long term. It's easy to grasp how a car payment will impact your monthly cash flow, but hard to grasp the concept that paying for a car in cash will leave you in a better place many years down the road. The "loss of control" aspect of a fear of flying is an analog to a loss of control of not only investment choices, but of life choices. What if I don't don't want to drive this car in 5 years? What if I don't want to live in this city in 5 years? People can control what happens in the short term and it's easier to think that way for financial decisions also.

As a related aside, I think the general population has a fundamental lack of knowledge of statistics and probability. The chances of being in a plane crash is miniscule compared to being in a car crash. But plane crashes make the news and there are sensational pictures and videos of horrific accidents. And people don't want that to happen to them because they don't understand the actual risk level. And the argument is always along the lines of "Well, sure the chances are small, but it still could happen!" Same thing with financial risk. There are always stories of people losing millions of dollars in the stock market. That's a very small portion of the population who invests in the stock market, but no one wants that to happen to them, so they stay away. People believe there is more risk than there actually is in all sorts of situations because they don't understand statistics.
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Re: Stock investing and the fear of flying

Post by BTDT »

How many times have we heard on the 24/7 news and financial channels: "But this time is different' ? ..... or" the sky is falling"......

A few minutes watching National Geographic's 'Doomsday Preppers" can provide some interesting insight on how some people think about long term investments in the stock market. And some of these people seem to have been rather successful in business :oops:

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Re: Stock investing and the fear of flying

Post by Buddtholomew »

Another vote for relinquishing control. I experience the same anxiety when being on a bus, in a taxi, train or airplane. I prefer to control my own fate, rational or irrational.
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Re: Stock investing and the fear of flying

Post by berntson »

Kosmo wrote: As a related aside, I think the general population has a fundamental lack of knowledge of statistics and probability. The chances of being in a plane crash is miniscule compared to being in a car crash. But plane crashes make the news and there are sensational pictures and videos of horrific accidents.
This is an excellent observation. I live near New York and my wife and often ride the commuter trains. After the recent train derailment, my family told us how worried they are about our riding the trains. My wife has declared she wants to move back to Canada. Of course, this is all statistically silly. The odds of our being killed in a car crash are much higher than being killed in a train derailment. But car crashes are ordinary and train derailments extraordinary and we human beings seem to have a preference for ordinary risks.
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Re: Stock investing and the fear of flying

Post by Fallible »

Rick Ferri wrote:...
Here is my question to the Bogleheads'.
Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?
...
Rick Ferri
It's a good question and there may be nearly as many answers as people who believe in that long-term risk. To one degree or another and depending on the individual, it may be a matter of phobias or anxieties or disorders, fears, misunderstandings, denial, refusal, laziness to learn about the market or plain lack of interest in it, and/or some combination(s) of these. I think loss of control mentioned by lucky3 and other posters here is also a factor and in some cases probably the factor. Whatever, it seems irrational, but then the reasons so many people are in the stock market, e.g., to make money fast, can be just as irrational. A good survey of those who fear long-term risk would help.
Last edited by Fallible on Wed Dec 04, 2013 2:00 pm, edited 1 time in total.
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Re: Stock investing and the fear of flying

Post by larryswedroe »

Hasn't been any risk?
Ask a Japanese investor that question, since 1990 TOTAL RETURN minus 16%.

While the airplane example is a great one, I don't think it applies to stocks at all. IT's the same logic in fact that led Glassman and Hassert to write that book, Dow 36000

Just one man's opinion
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Re: Stock investing and the fear of flying

Post by JoMoney »

Behavioral finance shows that people weigh short term rewards and losses more heavily than future unknowns. People are more loss averse and hate losses more than they value gains. To some extent, a healthy skeptical "wall of worry" is probably good to have and natural.
When the market reaches new highs, despite knowing that the most likely outcome is even higher highs , it's rarely viewed as "a permanently high plateau." it's just a higher peak to fall from ... and just when you get people to believe that maybe it is "different this time", BAM!
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Re: Stock investing and the fear of flying

Post by abuss368 »

Hi Rick,

I like the analogy. Many folks simply do not understand investing and may be on the receiving end of bad or inappropriate advice.

Education and communication could go a long way (more so than the hard numbers sometimes).

Best.
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Re: Stock investing and the fear of flying

Post by Fallible »

JoMoney wrote:Behavioral finance shows that people weigh short term rewards and losses more heavily than future unknowns. People are more loss averse and hate losses more than they value gains. To some extent, a healthy skeptical "wall of worry" is probably good to have and natural.
When the market reaches new highs, despite knowing that the most likely outcome is even higher highs , it's rarely viewed as "a permanently high plateau." it's just a higher peak to fall from ... and just when you get people to believe that maybe it is "different this time", BAM!
I agree and yet loss aversion doesn't prevent many people from investing, just as not all investors who panic in bad markets don't act on that panic. BTW, I enjoyed the video.
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Re: Stock investing and the fear of flying

Post by staythecourse »

Buddtholomew wrote:Another vote for relinquishing control. I experience the same anxiety when being on a bus, in a taxi, train or airplane. I prefer to control my own fate, rational or irrational.
Excellent insight. I think it is this "belief" in control that is the difference. When folks know exactly how much money to expect x date y years from now it gives folks a sense of control. That feeling of control is likely more important then the logic of it is real control or figment of our imagination.

Good luck.
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Re: Stock investing and the fear of flying

Post by Levett »

Say more about "long term?"

When I was 30, I had one view of "long term?" Forty years later..... :wink:

And to me this is the acid test: if there's no cause for alarm ("fear" seems excessive), then why don't advisers simply set up "long term" portfolios and guarantee their clients that they will never lose money (nominal? real?)

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Re: Stock investing and the fear of flying

Post by Retread »

Rick Ferri wrote:...even though in the long-term a diversified stock portfolio has never lost money.
How can you make such a broad statement? It clearly isn't true for all diversified porfolios over all long term periods. I would suggest language and bit more limited than this.
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Re: Stock investing and the fear of flying

Post by VictoriaF »

Rick Ferri wrote: The fear of flying is different than the risk of flying.
Hi Rick,

What do you think about flying the fighter planes on your Avatar?

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Re: Stock investing and the fear of flying

Post by Jack »

Rick Ferri wrote:The fear of flying is an anxiety disorder whose source often has little or nothing to do with the actual risk associated with flight. Statistically, flying to a distant destination is much safer than driving a car. If you want to live longer – fly more and drive less.
What if on a frequent basis, you stepped onto an airplane and an engine caught fire, the oxygen masks popped out, you did an emergency descent, and then landed on a foamed runway because the gear wouldn't go down.

Would you say that their anxiety about flying is unfounded because nobody died? Yet the same near death experiences happen regularly in the stock market.
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Re: Stock investing and the fear of flying

Post by thomasbayarea »

Rick Ferri wrote:Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?
Because we (humans) are not wired to think long term -- either in the past or the future. Most people remember last week, last month and last year. Most people think about next week, next month and maybe next year. Very few people have the predisposition to think 30+ years. Hence most people think the stock market is "risky" based on short term experiences and ignore long term behavior.
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Re: Stock investing and the fear of flying

Post by M1garand30064 »

For the layperson, I believe a lot of it has to do with the way information is presented by the media. When I talk to people uneducated about the stock market the first thing they point out is that at any time their stocks could lose a huge portion of their value and decades of gains can be wiped out in a flash. This is reinforced by linear scale charts that show monster decreases relative to price. However, when I show people the same chart in log scale they understand that those huge drops do not necessarily erase 30 years of gains, and in reality an investor who put their money in the market 30 years prior would still have a very reasonable CAGR even at the bottom of 2009.

Maybe that is really simplistic, but it does not help anything!
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Re: Stock investing and the fear of flying

Post by EternalOptimist »

Rick, I'm not so sure people can relate to thinking long term....what if they need the money sooner rather than later, it's hard to take that chance. Obviously, they willingly trade off reward for liquidity. Also, I think it's the volatility that scares people, and the media's fear mongering scares people--well if you keep seeing house fires on TV then..... As we know, fear is paralyzing. Good luck.
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Re: Stock investing and the fear of flying

Post by bertilak »

Rick,

I think flying/investing is a good analogy. In a recent thread we were discussing the "willingness" part of "need, ability and willingness" to take risk. My position was that there is an optimal and objective risk level for each and every investor based on that investors life situation. (I admit it is a fuzzy calculation.) In any case, willingness (aka fear) should not be part of the calculation, only risk. An investor should be willing to do the optimal thing and should not base investment decisions on those risk questionnaires which I now see as really being fear questionnaires. Basing investment decisions on willingness to take risk seems to be conflating fear and risk. Makes risk hard to talk about. Understanding the nature of risk and how to manage it should put fear in the background.

Where your analogy might break down with me is that the PLAN may be long term but one must account for the unexpected where withdrawals from the portfolio need to be taken. There IS a risk this might happen at the bottom of a slump. I think that makes your statement "in the long-term a diversified stock portfolio has never lost money" a bit off the mark. This is why it is smart to include bonds (i.e. less volatile and perhaps only lightly correlated with stocks) in a portfolio -- to reduce volatility which reduces the depth of slumps in the portfolio. If risk includes both the concepts of magnitude and frequency that at least addresses the magnitude part.

But that last paragraph is a nit. The analogy makes the risk/fear distinction clear and gets one thinking.
Last edited by bertilak on Wed Dec 04, 2013 3:05 pm, edited 2 times in total.
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Re: Stock investing and the fear of flying

Post by mall0c »

Rick Ferri wrote:I'm writing an article about the fear of stocks and would like your input. Here's my introduction:

The fear of flying is different than the risk of flying. The fear of flying is an anxiety disorder whose source often has little or nothing to do with the actual risk associated with flight. Statistically, flying to a distant destination is much safer than driving a car. If you want to live longer – fly more and drive less.

Many people have difficulty investing in the stock market because they have an anxiety similar to the fear of flying. Perhaps they believe something bad will happen to their money even though in the long-term a diversified stock portfolio has never lost money. US stocks have always recovered from bear markets and eventually move to new highs. It's happening now!

Here is my question to the Bogleheads'.

Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?

Thanks for your response.

Rick Ferri
I think it's an apt metaphor. The only thing I would say as a counter-point is that maybe it's not long term risk that keeps people away. If airplanes took frequent unexpected nose dives losing up to 50% of their altitude I would probably stop flying on them, even if they didn't actually crash into the ground and they regained their altitude. If I saw the ground coming at me fast out of my window seat I would poop my pants and never fly again even if I walked away unscathed.
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Re: Stock investing and the fear of flying

Post by nisiprius »

"Fear of flying" evoked the title "Fear of Crashing," a 1995 article in Worth magazine by Peter Lynch. This article, among other things, said that a 100% stocks portfolio could sustain a safe withdrawal rate of 7% and keep pace with inflation. It also said that if you agreed with what he had to say, "you'll never buy a bond or a bond fund again and you'll stay 100% invested in stocks forever."

So, Rick, the question is: how do you decide on how much stock risk to take? Because if there's NO real risk, then there's no upper limit. You say "in the long-term a diversified stock portfolio has never lost money. US stocks have always recovered from bear markets and eventually move to new highs." Very well. If you also believe you can project that into the future--that in the long term a diversified sock portfolio WILL never lose money and that US stocks WILL always recover from bear markets--then why not 100% stocks?

In fact, why not a little leverage? If stocks will always recover, why not 110%? Or 120%? Or 200%? or 500%?

Ayres and Nalebuff claim that historically, if young people had invested their retirement savings at 200% stocks, using leverage, they would always have done fine, despite occasional margin calls. On the rare occasions when margin calls would have wiped them out, they were to pick themselves up, dust themselves off and start saving all over again, and thanks to 200% leverage they would still be ahead of their fraidycat peers. Do you recommend 200% stocks for young retirement savers? If not, why not? Do you recommend 100% stocks for everyone, like Peter Lynch? If not, why not?

My own answer is that the riskier an investment is, the less reliable is our judgement of the amount of that risk.

LTCM collapsed as a result of risky investments--invested according to a fancy-schmancy system of having computer locate tiny mispricings, then leveraging them enough to get a worthwhile return from what would otherwise have been chump change. They thought the leverage was safe because they thought their detection of mispricing was a sure thing that could never go wrong. When they collapsed, they said that it was a "ten sigma event," one which would have occurred once in 10,000,000,000,000,000,000,000 years. So, there you have it. Rather than believing that, I would sooner believe that they misjudged the risk, and that what they claimed was a ten sigma event was, in reality, only maybe a one- or two-sigma event.
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Re: Stock investing and the fear of flying

Post by Bungo »

Rick Ferri wrote: Why do so many people believe there is long-term risk in the stock market when there hasn’t been any?
Lack of long-term risk in the market doesn't mean that individual investors don't get hammered, e.g. by failing to diversify or by trading in and out of the market at bad times. Most of us probably know more people who have taken a beating in the stock market than have died in plane crashes.
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Re: Stock investing and the fear of flying

Post by bertilak »

nisiprius wrote:Very well. If you also believe you can project that into the future--that in the long term a diversified sock portfolio WILL never lose money and that US stocks WILL always recover from bear markets--then why not 100% stocks?
That "always" leaves open "how long will it take."It may take longer than you can wait. Assuming you aren't an endowment with an indefinite horizon, eventually that money will be needed. You just have to hope your portfolio ship comes in before you need it.

Again it comes down to "the market can stay irrational longer than you can stay solvent." That's a risk even if the market someday recovers. It might be after you are dead -- dead from a diet of Alpo and Corn Whiskey on the mean streets of Buffalo.
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Re: Stock investing and the fear of flying

Post by midareff »

Rick... Thanks soooo much for the posts here and all the books. I suppose you have as great a hand in my retirement planning and strategy as anyone, and I am grateful for the insights.

I have no fear of flying but having tried individual stocks, Dogs of the... and other approaches the idea of individual stock and bond investing now scares the XYZ out of me.

"nisiprius wrote:Very well. If you also believe you can project that into the future--that in the long term a diversified sock portfolio WILL never lose money and that US stocks WILL always recover from bear markets--then why not 100% stocks?"

1. Sequence of returns in retirement (See Otar and others), #2. Rebalancing benefits that indicate 60/40 is better than 100% (see Bengen), #3. Excess volatility and friction losses..... and more... I suspect you know way better Nisi.
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Re: Stock investing and the fear of flying

Post by Jonathan »

Great metaphor, especially when the superiority of air travel over ground travel is considered. AFAIK, only applies to commercial air travel, and not general aviation.

I'll cast my vote for media exposure. Stock Market Experiences Gradual Steady Growth Over 20 Years is not exactly a sizzling headline. More funny examples: Headlines from a mathematically literate world.

Opposite effect of the lottery. The media offers great exposure to the lottery winners, but nobody mentions the multitudes of losers. It's commonly thought that if you invest in the stock market, one day it will "crash" and you will be impoverished, but if you buy lottery tickets regularly, one day it will pay out big, and you only lost "a few dollars" here and there.

Agreed completely w/gwrvmd. The way that the term "crash" is bandied about in the press implies that people went to sleep wealthy and woke up to find themselves living on the street; "crash" is used to imply a permanent, 100% loss.
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Re: Stock investing and the fear of flying

Post by Watty »

In the "flying vs driving" comparison there is another factor in addition to the loss of control which is how often you do it.

Many people don't fly very often so when they do they are in a much less familiar situation than driving.

Even someone that has been investing for years or decades with regular 401K deductions would naturally feel some anxiety in deciding how to invest a large windfall that they suddenly receive since they are not used to with dealing with large amounts of money.
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Re: Stock investing and the fear of flying

Post by eucalyptus »

For this white knuckle yet nonetheless frequent flyer:

- control issues - why should I take risk in stocks versus my own business, which I control and understand. This factor is my principal reason for deemphasizing equity investments.

- trust issues - the market seems to me corrupt, rigged and dependent on government support

- the statement that there hasn’t been any long-term risk in the stock market is untrue, or depends on the timing of one's long term, right? See:

http://www.nytimes.com/interactive/2011 ... .html?_r=0
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Re: Stock investing and the fear of flying

Post by MassInvestor »

Is it that there is no risk or is it just that the risk hasn't been realized?
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Re: Stock investing and the fear of flying

Post by brick-house »

Turbulence.... Judging by fund flow history and the underfunding of many Defined Benefit Pensions - many investors (amateur and professional) make poor decisions (sell low, buy high,) in times of market turbulence.
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Re: Stock investing and the fear of flying

Post by Fallible »

Good thread and FWIW, I would just add that it seems there are really two issues here: whether there is long-term risk, and people's reaction to it, or how they perceive risk. There are people who continue to fly despite near crashes and people who will be in the market despite crashes and no matter whether there is or isn't long-term risk. Their perceptions differ and are not always right, but there they are.
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Re: Stock investing and the fear of flying

Post by nisiprius »

I once estimated that although the risk per mile of flying is much lower than the risk per mile of driving... and risk per mile is what one should rationally base decisions on... the risk per minute was higher. Not sure that's still true. However, add into that the fact--I think it's a fact--that most accidents occur on takeoffs and landings.

I concluded that the perfectly rational traveler would alway prefer to fly, AND would always feel anxious during takeoff and landings.
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Re: Stock investing and the fear of flying

Post by Professor Emeritus »

Interestingly I have done teaching and research on similar "fears" and unfortunately the analogy is deeply flawed. Commercial flight risks rarely involve intentional and hostile acts. The Stock market by definition is composed of intentional and financially hostile forces. In fact the other side of the stock market transactions IS out to get you (financially). In Commercial air flying you "normally"lack a key ingredient of the market which is the fear of the INTENTIONAL acts of a person bent on harming you. The equivalent to the stock market is not flight fears but piracy or terrorism fears. We describe this as "intentional uncertainty" in risk regulation.

Because stock market manipulation is largely a zero sum game you can limit your exposure to the risk of intentional uncertainty by index buying the entire market.
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Re: Stock investing and the fear of flying

Post by czeckers »

To me, the central issue revolves around the definition of "long term". We here know that long-term can be 15-20 years when it comes to the stock market. As someone said, "In the long-term we're all dead." I think most people cannot stomach seeing losses year after year for 2-3 years let alone 5 or even 10 years without abandoning their strategy.

For the vast majority of poeple, the curx of the matter is that most people get their investment strategies from the news: Invest in this or that because that's what's hot right now and that's what everyone is talking about. I think very few people (Bogleheads excluded) have enough investing knowledge to be able to design and implement a strategy on their own, and be confident that, even during prolonged declines, that their strategy is sound and all that is necessary is to stick to it and execute on the rebalancing. Maybe this plays into your analogy that very few people know much about flying an airplane, and don't know how to assess if things are going well when the turbulence hits and the wings are flapping like a seagull, or when things are going badly. The normal bumps can look pretty scary from seat17A.

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Re: Stock investing and the fear of flying

Post by Rick Ferri »

The Stock market by definition is composed of intentional and financially hostile forces.
Flying by definition has intentional and hostile forces; weather, mountains, fire, wind shear, air-frame failure, system failure...These fears are not acts by individuals, but they are routinely personified as by Mother Nature and Acts of God by fearful fliers.

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Re: Stock investing and the fear of flying

Post by Taylor Larimore »

Bogleheads:

Rick Ferri was a Marine Corp fighter pilot and Wall Street stock broker before becoming a Boglehead. When it comes to flying and investing, Rick knows what he's talking about.

Best wishes.
Taylor
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Re: Stock investing and the fear of flying

Post by abuss368 »

Taylor Larimore wrote:Bogleheads:

Rick Ferri was a Marine Corp fighter pilot and Wall Street stock broker before becoming a Boglehead. When it comes to flying and investing, Rick knows what he's talking about.

Best wishes.
Taylor
Hi Taylor,

Very good post.

Rick & Taylor - thank you for your service to our great country!

Best.
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Re: Stock investing and the fear of flying

Post by Rick Ferri »

nisiprius wrote:I concluded that the perfectly rational traveler would alway prefer to fly, AND would always feel anxious during takeoff and landings.
As every pilot knows, landing is the most risky part of flying.

A sign I saw one day sums this up well, "Airplane Rides $1, Landing $10"

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Re: Stock investing and the fear of flying

Post by abuss368 »

Rick Ferri wrote:
nisiprius wrote:I concluded that the perfectly rational traveler would alway prefer to fly, AND would always feel anxious during takeoff and landings.
As every pilot knows, landing is the most risky part of flying.

A sign I saw one day sums this up well, "Airplane Rides $1, Landing $10"

Rick Ferri
Rick,

If I may ask, what did you fly as a Marine? Harrier?
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Re: Stock investing and the fear of flying

Post by Professor Emeritus »

Rick Ferri wrote:
The Stock market by definition is composed of intentional and financially hostile forces.
Flying by definition has intentional and hostile forces; weather, mountains, fire, wind shear, air-frame failure, system failure...These fears are not acts by individuals, but they are routinely personified as by Mother Nature and Acts of God by fearful fliers.

Rick Ferri
I'm a terrified flyer who never ever personifies nature. Ordinary operational negligence and design failure are more than enough to scare me. But the difference between intentional and natural events is enormous. (setting aside negligence for the moment) It is a juvenile reification to describe nature as "hostile". Nature just "is". Earthquakes floods etc just occur. Human errors are typical both in the design and operation of aircraft, but suicidal pilots etc are simply not common.

"Understanding" (not predicting, which is a waste of time) the stock market requires game theory. Game theory is useless in dealing with nature, and problematic in dealing with negligence. .
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Re: Stock investing and the fear of flying

Post by manwithnoname »

Professor Emeritus wrote:
Rick Ferri wrote:
The Stock market by definition is composed of intentional and financially hostile forces.
Flying by definition has intentional and hostile forces; weather, mountains, fire, wind shear, air-frame failure, system failure...These fears are not acts by individuals, but they are routinely personified as by Mother Nature and Acts of God by fearful fliers.

Rick Ferri
I'm a terrified flyer who never ever personifies nature. Ordinary operational negligence and design failure are more than enough to scare me. But the difference between intentional and natural events is enormous. (setting aside negligence for the moment) It is a juvenile reification to describe nature as "hostile". Nature just "is". Earthquakes floods etc just occur. Human errors are typical both in the design and operation of aircraft, but suicidal pilots etc are simply not common.

"Understanding" (not predicting, which is a waste of time) the stock market requires game theory. Game theory is useless in dealing with nature, and problematic in dealing with negligence. .
There are about 18,000 scheduled commercial flights each day in the US or about 6,570,000 per year with fewer than one fatal crash per year. Odds of dying on a single flight are 56 million to 1. Flying is boring.

http://wiki.answers.com/Q/What_are_the_ ... lane_crash

You have a greater chance of being killed by lightning or in a train crash than in a plane crash.
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Re: Stock investing and the fear of flying

Post by gmtret »

While it is certainly not a singular opinion, it is my opinion that a fear of flying is the result of having a guilty conscience. And while YMMV, Shiller was interviewed on 12/4/2013 on Charlie Rose. I don't know exactly when it will be available but see unctv.org/Charlie Rose
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