Markets Never Forget (But People Do): How Your Memory Is Costing You Money

In Markets Never Forget, Ken Fisher lays out his case for why we should all study the past, yet remember that “this time it isn’t different.” From politics to recessions, reviewing history makes patterns easier to spot. They rarely repeat exactly, but they can still guide your future investing decisions.

As Ken puts it, “A great many things we think are new and different, we’ve had around for a long time.” He’s quick to clarify what the past can and can’t do: “One concern some may have about this book is: Can the past predict the future? No, the past never predicts the future. But what the past does, in studying it, is allow us to see the impact of things in prior periods.”

Investors Frequently Forget, But Markets Never Do

In Markets Never Forget (But People Do), Ken Fisher shows you how your memory plays costly tricks on you, along with some simple ways to start sharpening your market-related recall today. History never repeats itself perfectly, but when you understand how investors reacted to similar events in the past, you can begin to shape better forward-looking expectations

Take how investors' memories go haywire over market averages. Many believe that because stocks average about 9% to 10% a year over long periods, an average annual return is a reasonable expectation for any single year¹. As Ken shows, though, average returns are actually unusual, and that’s something investors forget fast. Annual stock market returns normally vary widely, and returns close to the long-term average show up in only a small number of years.²

Here’s another example of how investors forget but markets never do: Almost every time a new bull market begins, the first year or even two brings headlines shouting "No Bull!" or something similar. Many pundits don't want to look silly by sounding too optimistic. So, they insist it isn’t a new bull at all, just a countertrend in a longer bear. But normal bull market upward volatility (and yes, volatility can be positive, too) gets mistaken for a bear that could arrive at any moment. This has played out again and again through history:

• March 26, 2009: A financial services CEO warned, "This is a bear market rally, not something more."³ Oops--it was something more. Globally, the bear market bottomed 17 days earlier.
• December 28, 1990: "The market has generally adhered to our bear-market rally forecast since the September-October bottom."⁴ Actually, the 1990s mega-bull market started in October--two months before this quote.
• May 6, 1985: "I still think the recession lurks . . . but continually falling interest rates could ease recession fears enough to cause a healthy bear market rally."⁵ The bull market that started in August 1982 would run through August 1987, pause for that short 1987 bear, then run to October 1990.
• And so on . . .

Interestingly, people often think being cautious about a new bull market is prudent. They’d rather be wrong and too bearish than wrong and too bullish. Yet history shows that if you're growth oriented, being wrongly bearish can do more harm to your long-term returns.