This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with Morgan Housel, partner at Collaborative Capital, and author of recently-published The Psychology of Money.
There's a cost of admission to the stock market, says Housel, and that's putting up with uncertainty and volatility. In order for the market to give an you - an investor - strong returns over time, you need to be able to put up with that cost. It's very common, says Housel, for the market to not "make sense," i.e. its performance seem disconnected from the news or the economy.
Turning to the extraordinary events of 2020, the major takeaway for Housel is the broad belief that monetary and fiscal authorities know just what to do when financial panic hits, i.e. provide massive, nearly open-ended stimulus. As recently as the global financial crisis, notes Housel, there were intense debates about the advisability of swiftly cutting rates, ZIRP, QE, and a major fiscal boost. This time around, the Fed and the government in a matter of weeks took rates to zero, launched a massive QE program, and passed trillions in fiscal measures.
Does this mean the end of financial panics or even bear markets? Of course not, says Housel - the business cycle has not been repealed. What Housel expects going forward, though, are sharper, swifter panics, followed by equally impressive recoveries.
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