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Awfulizing the Future of Investing

by on June 22, 2014 7:45 AM

On my way to work this morning after breakfast at the Waffle Shop, I tuned into Glenn Beck on one of our local radio stations and he was waxing on about ISIS, the Caliphate and the potential for $200 a barrel oil if Iraq falls to the jihadist insurgents.

Mr. Beck was commenting on the potential for the Middle East developments to disrupt our economy through oil pricing and the possibility of economic and investment dislocation here in the United States.

He was, in a word, awfulizing. You know what I'm talking about. I have a family member who awfulizes about her health and believes every pain and strain requires trips to multiple doctors for diagnosis and aggressive treatment. When I was young, my mom used to assure me that my little aches were just growing pains and that they'd go away. Now I have older person's pains, and it is not the end of the world -- just part of the territory. No need to awfulize them and run to the doctors ... at least not yet.

Awfulizing is a distortion of thinking. String together a collection of facts about nearly anything and then just leap to the most catastrophic conclusion that folks with a similar point of view can agree upon. Survivalists are an example of Awfulizers and their actions are based on organized civilization coming to an end.

So Awfulizers are folks who draw particular conclusions (usually negative and needed to be prepared for) within the process of awfulizing about a given subject. So the word is both a noun and a verb.

The investment markets have a group of folks who keep predicting a sharp and long-lasting decline in stock prices. Among the most famous is the Harvard-trained Harry Dent who has developed a detailed analysis that predicts we are on the brink of a seventy percent decline in the stock market averages.

Harry might be right, but so far it hasn't happened. The problem is that he might be right and just off in his timing. I have another family member who checks the solar flare activity on the NASA site worrying about what might happen to the country if we experienced a massive solar eruption. It could happen. But it hasn't happened yet, so maybe it is still a timing issue. It might never happen or might never happen in our lifetime.

The Awfulizer's opposite is the Pollyanna. A Pollyanna is a person who unfailingly looks on the positive side of things and believes, quite unrealistically, that everything will turn out all right, every time. Many people involved in the investment industry carry a dose of optimism in their opinions.

Our country has been advancing for over two hundred years and -- in general -- things have been gradually improving. The American Dream has worked pretty well so far. But as we all know, past performance does not guarantee future results. Fair enough.

Some people hold the opinion that the future will turn out somewhere between the Awfulizers' disaster and the Pollyanna's happy ending. Hopefully, no matter how it turns out, there is more of a future after that and it will turn out too!

In the meantime, as an investment advisor and portfolio manager I have to be involved with placing client money in the markets to protect their principal while seeking to earn a satisfactory return. I don't have the luxury of awfulizing (not very many investment selections fit that point of view) or of being a Pollyanna, hoping that everything is good and will work out.

On the one side, I must be a skeptic, carefully observing what is developing and measuring portfolio results to avoid losses. On the other side, I have to seek out opportunities that offer the potential for gains, either from rising stock prices or a nice flow of interest and or dividends. I seek success in balancing the two.

The truth about the Awfulizers and the Pollyannas is that no one can predict the future with certainty, no matter how studied their position. The future will turn out the way that it does without regard to the prognosticators, be they optimistic or pessimistic.

So live your life, make your choices (investing your money for some) and be ready to correct course when you need to bring your choices more in line with reality.

Don't be seduced by either the Awfulizers or the Pollyannas.

Dan Nestlerode was previously the Director of Research and Portfolio Management at Nestlerode & Loy Investment Advisors in State College. He retired in 2015 after 50 years in the investment business. A graduate of Penn State University, Nestlerode became an investment advisor in 1965. He can be reached at [email protected]
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