As You Were: The Case for Less Worrying

It's March 2009. The economy is as ugly as it's been since the 1930s. The nation's largest banks are on the brink of nationalization. Hundreds of thousands of jobs are vanishing every month. The stock market is at its lowest level since the mid-1990s.

But I'm sitting in a mall in Los Angeles and I can't believe my eyes. The place is packed. It hardly looks different from two years before, when the economy peaked. And people weren't just looking. They were buying. More than that, they looked confident. It was visibly different from the weeks and months prior when even Los Angeles' consumers, practically allergic to not spending money, went into hibernation.

True story: I asked a store clerk whether she noticed a change. "Yes," she said. "I think people just got tired of worrying all the time. They want to get on with it."

That was a really smart observation, I remember thinking. In hindsight it was brilliant -- for several key variables, March 2009 marked the bottom of the Great Recession.

I didn't think about it again until I came across this quote in the book Only Yesterday, describing the recovery from the wretched depression of the early 1920s:

Like an overworked businessman beginning his vacation, the country had had to go through a period of restlessness and irritability, but was finally learning how to relax and amuse itself once more. A sense of disillusionment remained; like the suddenly liberated vacationist, the country felt that it ought to be enjoying itself more than it was, and that life was futile and nothing mattered much. But in the meantime it might as well play -- following the crowd, take up the new toys that were amusing the crowd, go in for the new fads, savor the amusing scandals and trivialities of life. By 1921 the new toys and fads and scandals were forthcoming, and the country seized upon them feverishly.

People grew tired of worrying, in other words. They wanted to get on with it.

When I looked into this more, I realized how common the "sick of worrying" theme occurs during recessions. In 1962, one newspaper pushed that "it's about time you stopped worrying about layoffs and start thinking about security and the future." In 1983, another wrote about a rise in consumer confidence: "The nuclear threat still looms. Reports come in every week of further destruction of forests by acid rain. Unemployment is at a record high. But people seem to be tired of worrying." Then again in 1992: "People are saying, 'I'm tired of this recession,' and they are spending" again, wrote the Dallas Morning News.

It turns out there's more to this than anecdotes. There's a theory in behavioral psychology called the fading affect bias. In simple terms, it states that negative emotions leave our memories much faster than positive ones -- a sort of natural aversion to unpleasant thoughts.

In 1948, psychologist Sam Waldfogel gave a group of participants 85 minutes to write down every event they could remember from the first eight years of their life, and rank them as pleasant, unpleasant, or neutral. Logically, events should have been spread evenly between the three. But they weren't. Pleasant memories outweighed negative ones by almost twofold. People had a distinct positive bias when recalling their past.

And it only grew stronger with time. "For example, as people get older, they rate their childhood as happier," write psychologists Richard Walker and John Skowronski. It's not that people forgot negative events; just that the emotions of the experiences tended to shift. "In one study in which participants recalled positive, negative and neutral autobiographical memories, older adults were more likely than younger adults to reappraise negative events in ways that made the events seem more positive," the pair wrote. Other studies showed the phenomenon scaled cleanly over time. Participants recalled events as less negative after three months, less so after nine months, even less so after two years, three years, four years, and so on.

"I think it's tough to worry for a very long time," Dan Ariely, a behavioral economist at Duke University told me. "It's exhausting. It diminishes the capacity of all kinds of things."

So, what's this mean for your investments? People worry and the economy slows down. Then they get over it and it recovers. Same story again and again. John Maynard Keynes called these shifts animal spirits -- "a spontaneous urge to action rather than inaction." The important thing is that they happen consistently and predictably. You get to choose whether you want to stop worrying before the crowd, or wait and follow the crowd. It's the epitome of being fearful when others are greedy, and greedy when others are fearful. And it may be the single largest factor in determining whether you'll be a successful investor or not.

 "If you wait for the robins," Warren Buffett wrote in 2008, "spring will be over." Your choice.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (18) | Recommend This Article (52)

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  • Report this Comment On August 24, 2012, at 1:10 PM, TheDumbMoney2 wrote:

    Nice post.

  • Report this Comment On August 24, 2012, at 4:38 PM, GrCelt wrote:

    Gee, sounds like Robert Prechter has some followers.

  • Report this Comment On August 24, 2012, at 4:40 PM, Borbality wrote:

    Yeah, definitely a lot of psychology there. Talk to any elderly people and chances are they grew up in what would be described as poverty today. They thought it was great!

  • Report this Comment On August 24, 2012, at 6:31 PM, xetn wrote:

    Question: Is the economy better now than in 2009? If so, how?

    Question: Are the big banks better off now than in 2009? If so, how?

    Question: How soon before the Fed initiates QE*?

    Question: What happens to the economy when the largest tax increase in history takes place on 1/1/2013?

  • Report this Comment On August 24, 2012, at 8:52 PM, Darwood11 wrote:

    "...you get to choose."

    Nice piece, and yes, life is about choice.

    I continue to wonder about why it is that the past seems better when viewed from the distance that time creates. Is it that the "worry" has been removed and all we have left is our recollection of what actually occurred? Is it also because of "survivor bias?"

    There are certainly some real problems facing this country, this economy and those of us who live in it.

    But remember the "good old days?" In my early life that included polio, 100 megaton bombs capable of obliterating everything within a 100 mile radius, deep recessions, layoffs, the arab oil embargo, the draft and the Viet Nam war.

    Later it included the joys of being broke, marital divorce, and losing darn near everything but not the obligations of parenthood.

    Then as now, I had to decide how I was going to be with all of these problems. How to live my life in such a soup? Should I focus on the misery, or ignore that and party? Neither seemed a way I could be responsible for my well being and my place on this planet.

    I decided to choose what I listen to, and choose how I use that information. Using information implied getting out of my head and getting into action. I took some coursework to help me to do that. One skill to be learned was to listen to myself thinking, and to listen as an impartial observer. It was fascinating.

    In fact, for many years I had a homemade sign over my desk. It said "Are you in your head or are you in action?"

    There are a lot of life-affirming things we can do. Watching others live their lives while listening to the worries, concerns and various warnings is not one of them.

    All of that is pretty much like an hourly weather report. However, I don't generally live my life based on that weather report, and neither do most people.

    There has been a lot of research about why people do worry about certain things. An article in a popular magazine a few years ago was entitled "Why Do People Worry About the Wrong Things."

  • Report this Comment On August 24, 2012, at 10:35 PM, MASTERHF wrote:

    Independently of the road the american economy goes, the present facts make us believe that we should increase gold % in our portfolio:

    - Interest rates are very lower and will be in the next future

    - A new QE will soon be implemented, so the dollar will depreciate

    - Investors like Soros and Paulson are taking big positions in gold ETF's

    See this interesting article (https://sites.google.com/site/higheralphaideas/home/allroads... )

  • Report this Comment On August 25, 2012, at 1:13 PM, portefeuille wrote:

    ... or you could have looked at indices like the KOSPI -> http://finance.yahoo.com/q/bc?s=^KS11&t=5y&l=on&... (low in 2008) or the NASDAQ100 index -> http://finance.yahoo.com/q/bc?s=^ndx&t=5y&l=on&z... (low in 2008 and almost a "double bottom" (2008 and 2009)).

  • Report this Comment On August 25, 2012, at 1:20 PM, portefeuille wrote:

    It was extremely easy to notice the end of the crash a few weeks after the March 2009 low. Not quite that easy to notice it in late 2008 ;)

    ifo business expectations also made their low quite at around December 2008. By April 2009 their should have remained very little "doubt". And in June 2009 it was clear how the rally would go on ->

    http://caps.fool.com/Blogs/chart/743508 ;)

  • Report this Comment On August 25, 2012, at 1:20 PM, portefeuille wrote:

    low quite -> low

  • Report this Comment On August 25, 2012, at 2:17 PM, NOTvuffett wrote:

    Morgan, I agree that psychology plays a big role in the economy but it is not something you can really quantify, it is all just speculation.

    The fact that this recovery is the slowest in 7 decades or so suggests to me that there may be some real systemic problems to worry about.

  • Report this Comment On August 26, 2012, at 2:19 AM, portefeuille wrote:

    their -> there

  • Report this Comment On August 27, 2012, at 11:16 AM, ejclason2 wrote:

    On vacation with my brothers family, at dinner, each diner would give their petal (best thing) and thorn (worst thing) that happened to them that day. My nephews, 6, 6, and 4, would almost always give a petal but no thorn. This despite the fact there was a reasonable number of fits, when they didn't get their way, and occasional painful incedent.

  • Report this Comment On August 27, 2012, at 4:16 PM, Darwood11 wrote:

    /\--- Which is to say, life is good until we decide, and choose, otherwise!

  • Report this Comment On August 30, 2012, at 9:05 PM, NickD wrote:

    companies like WMT WM CLX GIS MCD CL YUM NKE stock price pretty muuch back to pre 08-09 highs if not up more.

    WMT u shop there alot

    WM trash is forever

    CLX do u clean

    GIS u probably ate sometihng GIS today

    MCD how many do u drive by everyday

    CL what toothpaste u using right now

    YUM... KFC Pizza Hut Taco Bell

  • Report this Comment On August 30, 2012, at 9:07 PM, NickD wrote:

    forgot NKE well cmon u own a pair

  • Report this Comment On August 31, 2012, at 11:20 AM, Panther007 wrote:

    Nicely written piece with well thought out research. It's getting harder to ind pieces written well - especially at CNN! I too believe we must all stop worrying so much. You can do that a lot easier by getting rid of cable. The media gets you so wound up - on purpose - so you can me aware of so much conflict and angst in the world. Just turn it off.

    Thanks for reminding us to relax - we need to hear it.

  • Report this Comment On August 31, 2012, at 2:31 PM, Darwood11 wrote:

    I suppose a question to ask is "what's the benefit of worrying" particularly if we aren't willing to choose a course of action that addresses the cause of the worry?

    According to Pew Research, 70% worry about money. So what are those 70% doing about it? Apparently some are reducing debt, per a related article.

    Worry, someone once said, is like a rocking chair. It gives you something to do, but get's you nowhere.

    I sometimes wonder if we have devolved to the point that "worry," aka "the gun to our head" is required to get us to act.

  • Report this Comment On August 31, 2012, at 6:18 PM, emdtech1 wrote:

    The expectation by the market is that everything will return to normal before the recession or lost decade, but clearly the evidence does not support this, whether or not we are tired of it. We are in the era of jobless recovery where productivity gains replace the need for more workers. Supply will not be the problem, demand or the ability to pay will be.

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