Why Do Bears Seem Smarter Than Bulls?

I admit it: I’m jealous of Nouriel Roubini aka Dr. Doom. He’s been dead bearish this rally (see our joint CNBC appearance on July 5) and I vaguely recall him being bearish at the market lows in March, 2009. But, to be fair, in August 2006 he was calling for a housing crash as well. So I give him some credit.

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But I’m jealous that despite being non-stop bearish over the past 1.5 years since the lows he still gets quoted everywhere, speaks at every conference, has supposedly 1000s of institutional clients paying for his wisdom, and has time for non-stop parties that he will never invite me to. Well, to be fair, he told me he will invite me to one if and when we go into a double-dip recession. But since that is not happening, the likelihood is that I will never go to a Roubini party. Why is he, and every other bear (Howard Ruff, Peter Schiff, etc), quoted everywhere all the time even though in some cases for decades they’ve been dead wrong (see this Howard Ruff quote from 1980 (read the italics)). In fact, perusing the message boards, optimists on the economy are often referred to as idiots and morons even though most metrics for the economy have gone straight up since mid-2009 and the stock market is about 80% higher than it was at the lows.

So why are the bears often seemed smarter or more in tune than the bulls?

1) Laziness. People want justification to not work harder (“if the world is going to hell then why should I bother”).

2) Evolution. People’s brains are hardwired to respond more to signs of danger. Our brains can get fixated, and then addicted, to the negative more than the positive.

3) Fitting in. Because we all have a need to be accepted, liked, and listened to, people are likely to share bad news than good news (because they know that #2 above will get them to be listened to if its bad news).

4) Pattern recognition. Because of #2, people will notice bad events more than positive events as they happen and more easily link those events to the people who “warned them”.

Consequently, people begin to overgeneralize ("we just had a lost decade, so STOCKS ARE BAD").

Two steps to avoid the pessimism:

1) Remind yourself of the evolutionary tendency to latch onto the negative (and then to subsequently overgeneralize)

2) ask yourself what the agenda is of the people making the pessimistic claims.

3) Remind yourself that:

  • Companies are beginning to spend their record high levels of cash (see point #13 in the link). Intel is buying McAfee in its first cash acquisition of a public company in over a decade, for instance.
  • Dendreon is curing prostate cancer

Maybe the Bears get to go to all the parties, but long term the bulls should make money.

Companies mentioned in this post








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