Certainty Is Usually a Warning Sign

What past decades teach us about overconfidence and turning points.

I often get asked what I think the stock market will do going forward. The truth is, I have no idea, but I’m very confident that as soon as everyone is convinced things won’t change, that is exactly what will happen.

Morgan Housel recently made a similar point, publishing a few short stories on his blog. One of them goes like this:

President Clinton noted in his January 2000 State of the Union speech:

“We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back surpluses in 42 years; and next month, America will achieve the longest period of economic growth in our entire history.”

That wasn’t an exaggeration. But it marked the beginning of the worst decade for the stock market in modern times.

In January 2010, President Obama noted in his State of the Union speech:

“One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. And for those who’d already known poverty, life has become that much harder.”

That wasn’t an exaggeration. But it marked the beginning of one of the best periods for the stock market in modern times.

Big shifts often happen when everyone is convinced they won’t.

The Great Depression followed the Roaring Twenties, and the lackluster returns of the 60s and 70s followed the tremendous returns of the 1940s and 50s.

And just as this chart points out, not every decade will be as good as the last.

So, while I don’t know what the market will do next, I expect the future will look different than today. And as financial planners, that is what we prepare for.

---

Personal Note:

My wife recently picked up some new foster dogs from Jenni’s Rescue Ranch. A mom and four puppies that look like this:

If you are looking to adopt a dog that looks like a mix between a chihuahua and a pug, we’ve got what you are looking for.