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Perma-Bears: Pollyannas in Disguise?


The utopian psychology behind the bearish stance.

One thing I've always been interested in analyzing is why people believe the things they do. I'm not referring to their specific reasons or arguments; often, such "reasons" are just elaborate justifications or excuses in support of beliefs they identify with or feel comfortable with on a subconscious level.

This tendency to justify one's predetermined beliefs seems to be applicable to many areas of thought. For example, studies have shown definitively that political beliefs aren't as voluntary as we might think. The same is true of the intensity of religious beliefs. In both cases, these beliefs tend to be highly associated with certain personality traits, which are in turn highly associated with certain biological and physiological traits - such as hormone levels. These, in turn, have very high hereditability (i.e. are transmitted genetically).

It's also clear that culture drives human thought and behavior at a subconscious level. The nation you were raised in, the church you attended while growing up, the type of values that were inculcated in the home, etc., all have a major impact on people's thoughts and behavior in a variety of situations.

Having been a student of financial markets for nearly 20 years, I'm quite convinced that personality traits -- inherited or culturally acquired -- have an enormous impact on the beliefs and behaviors of traders and investors. I also believe that such personality traits greatly impact investment performance, and there's a growing body of evidence that bears this out: Successful traders and investors tend to share certain traits. Another recent paper showed that men with higher testosterone levels tended to be more successful traders than men with lower testosterone levels (potentially due to higher risk appetites, greater impulsivity, etc.).

You might be wondering what's got me thinking about all of this; I would direct your attention to the comments that follow Professor Kevin Depew's recent article, The Time for Bearishness Has Passed. The mere suggestion that it might be time to start look for some long-term opportunities in the stock market is treated as apostasy by some bearish folks; they simply cannot fathom how Professor Depew could possibly believe this.

It would be a mistake to dismiss these bears, because their arguments do have logical merit; after all, some are restatements of arguments made by many respected professionals. Indeed, even commentators of great prestige seem completely befuddled by the rally we've had since March.

I'm not interested, at present, in the specific reasons cited by either amateurs or professionals for their bearish views. Instead, I want to focus on the underlying psychological factors that may be driving these beliefs.
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