The author of the best-selling book “The Psychology of Money” attempts to ease investors’ anxiety about market downturns.
“Realizing how inevitable this is makes the situation more palatable when you’re going through it,” author and behavioral finance expert Morgan Housel recently told CNBC’s “ETF Edge.”
This is one of the major themes of his new book: “Same as Ever”, published in November.
Housel, a partner at venture capital firm Collaborative Fund, says a recession isn’t an “if” but a “when,” and that knowledge can make it easier to manage expectations.
“The bear market sows the seeds of recovery because people are afraid and don’t act,” he said. “All new technologies are born because people are motivated by fear.”
He also advises investors to always plan for surprise events, as they can surprise the market.
“(The financial system is) very good at predicting what the economy and the stock market are going to do next, with the exception of surprises,” Housel said.
Housel added that these surprise events, such as natural disasters and pandemics, tend to be all that matters in market upheavals. But as the market eventually stabilizes, even periods of calm can also “plant the seeds of madness.”