Save Your Doomsday Investing Reads for the Beach

Posted on March 27, 2013 at 8:06 AM PDT by

One of the most amusing aspects of the doomsday investing and the financial publishing business is how completely and totally sure the “doomer” prognosticators are, all the time, without fail.

It would be nice to have their optimism, even if it’s optimism that the world is near its end. The latest round of market predictions, for instance, trends toward the idea that a market crash must be imminent.

Not surprising. The market just set a new high. But you wonder how many of these doomsday investing folks are truly short the entire market — or just talking about it.

doomsday investing

Behind the immediate correction calls you also have the unending alarms of generalized doom. There are plenty of doomsday investing folks who have built cottage industries around predicting total economic collapse.

Unnerving reading, for sure, but how realistic is the doomer view?

Consider some of the things they’ve said in the past, like we’ll see Dow 40,000 by 2008, the year the Dow hit…8,046 on its way down to 6,626 soon after.

That China is the future of the world economy, unless its rapidly aging population means it’s not.

That gold will go to $5,000 unless, of course, on second thought maybe it’s going lower.

It wouldn’t be hard to fill up the rest of this page with embarrassing doomsday investing flubs from otherwise respected names in the financial media commentary class.

The more productive way to approach the subject, however, is to consider the problem of long-range thinking in short-range matters.

It’s easy — extremely easy — to gather data over decades, dump it into a spreadsheet program and point out doomsday investing patterns. Waves and cycles, even supercycles and “foolproof” predictors of war and famine.

Serious investors should take doomsday investing for what it is: A weird hobby at best and a dangerous source of misinformation at worst.

Consider how long you will be an investor. Twenty years? Maybe 30? You simply won’t be investing over the span of a half-century.

Yet taking an all-in bet on a far-out doomsday investing prediction can lead you into immediate financial calamity. An investment that logically should crash and burn could instead surprise with years of outperformance. A “sure thing” could flop badly, turning your dollars into pennies overnight.

It is, perhaps, an insight so commonsensical that one shouldn’t mention it, but passive investing works precisely because it does not require you to be “right” about anything. It only requires you to be invested adequately for the level of risk you can assume over time.

Sensible doomsday investing

Owning a truly diversified portfolio might put you out of your personal comfort zone from time to time. You might hate gold but own it anyway. You might fear stocks (or bonds) but own them anyway.

You might find yourself buying into investment types that only recently seemed to be eating the economy alive (real estate) or having a horrible year (commodities) or are suspect on the face of it (emerging market debt).

Yet the serious retirement investor should own them in some measure — and save the doomsday investing reading for the beach.