As many of my clients and all of those who have attended my seminars know, investor behavior and behavioral economics is a fascination of mine, and it´s an area I spend a significant amount of time studying. In investing, panic is one of the key behavioral tendencies that folks must avoid. Easy to say, easy to write, but hard to do as the fear of something seems to be all around us at all times. Why?
In a fictional book that has been discussed all the way up to the halls of Congress, Michael Crichton´s State of Fear has certainly stirred up passionate debate. Although I won´t enlighten you with my opinion on what is typically deemed to be the crux of the book (the degree of global warming), I do want to address the underlying theme of the book, namely the degree of fear that everyday people feel. Below are some excerpts from one of the more interesting characters in the book, Professor Hoffman.
“Has it ever occurred to you how astonishing the culture of Western society really is? Industrialized nations provide their citizens with unprecedented safety, health, and comfort. Yet modern people live in abject fear. They are afraid of strangers, of disease, of crime, of the environment. They are afraid of the homes they live in, the food they eat, the technology that surrounds them. They are in a particular panic over things they can´t even see – germs, chemicals, additives, pollutants. They are timid, nervous, fretful, and depressed… Everything is going to hell, and we must all live in fear. Amazing…
…In the old days, citizens of the West believed their nation-states were dominated by something called the military-industrial complex… for the last fifteen years we have been under the control of an entirely new complex, far more powerful and far more pervasive. I call it the politico–legal–media complex. The PLM. And it is dedicated to promoting fear in the population – under the guise of promoting safety…
Western nations are fabulously safe. Yet people do not feel they are, because of the PLM. And the PLM is powerful and stable, precisely because it unites so many institutions of society. Politicians need fears to control the population. Lawyers need dangers to litigate, and make money. The media need scare stories to capture an audience. Together, these three estates are so compelling that they can go about their business even if the scare is totally groundless – As if it has no basis in fact at all.”
Now, remember – these quotes are from a fictional character in a fictional book, but, as I read it, I concluded that Hoffman wasn´t talking about politics or law or media – he was talking about investing (I can relate just about anything to investor behavior!). The basic tenet of Hoffman´s rant that I abbreviated (full soliloquy is on pages 450-460 of the book) is that many broad based powerful entities may be completely unconnected but they all have a similar vested interest in promoting fear.
Avoiding the Perpetual “State of Fear”