Skyscraper of Worry

A common adage among fellow behavioral finance devotees is "bull markets climb a wall of worry". This means simply that bull markets thrive on investor skepticism. It doesn't mean, however, that many risks and worries aren't valid things to be concerned over for society at large. But just because there are legitimately worrisome things out there doesn't mean they'll sink stocks, either.

It all harkens back to the fundamental, basic premise of investing: capital markets are effective discounters of widely known information. To be a successful investor, one must identify information not widely known, or interpret widely-known information correctly and differently from other market participants.

In other words, if it's widely known or misunderstood, it can't sink stocks. Take a look at the list of worries we've had to deal with since the bull market began in 2003. (And this is just what we could come up with off the top of our heads!)

• Trade and current account deficits grow to record highs
• War in the Middle East
• Russian Nationalism
• Terrorist bombings in Madrid and London
• A nuclear Iran and North Korea
• Corporate collapse: Enron, MCI, Vivendi, etc.
• Corporate options and compensation scandals (too many to list)
• Oil jumps to $75 a barrel
• Regulation: Sarbanes Oxley
• A "collapsing" US dollar
• SARS & Avian Bird Flu
• US auto companies facing bankruptcy
• Airlines facing bankruptcy
• Biggest hedge fund blow-up ever with Amaranth
• Tsunamis in Indonesia
• The "collapse" of the US consumer and negative savings rates
• Social security and Medicare costs
• The real estate bubble
• Political uncertainty: Bush at approval rating lows; Blair pushed out of office; a shift in US Congressional power; a new PM of Japan elected
• Hurricane Katrina almost completely destroys New Orleans
• Nationalist/Socialist political tide in Latin America
• Rioting in Paris

Woah! If someone would've told people all these things would happen over the last 4 years, most would shutter themselves in. That's a sheer skyscraper of worry to climb! Yet, cogent analysis shows us each of these fears is unfounded in their ability to affect stocks negatively. The underlying fundamentals have been strong all along. Here's the result (to name a few):

• The MSCI World Index makes all-time highs
• Global GDP surges
• Corporate earnings at all-time highs
• Volatility at record lows
• US employment at 4.4%
• Commodities near all time highs
• Real estate around the world explodes in value
• Tame inflation

We say: keep the worries coming. Stocks have got further to climb.