April 7, 2009
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Occasionally, something we hear sticks in our minds and stays with us.
When I was at the Harvard Business School in the 1970s, my finance professor used a phrase that I often find useful in conversation with clients and investors - especially in markets such as we’re in today.
Other Articles by Dan Richards
Twelve Tips for Motivation in 2009
What to Say When You’ve Said It All
A Five-part Conversation to Rebuild Market Confidence
Three Myths of Market Underperformance
Twelve Pieces of Good News in the Gloom
Talking to Prospects about Last Year’s Performance
The End of Prospecting
Becoming the Fall Back Advisor for High End Prospects
How to Consolidate Client Assets
Today, many advisors who are fundamentally positive about prospects for the market are struggling with the best way to get clients to buy into that enthusiasm.
That phrase: “The pendulum never stops in the middle.”
This professor was one of the big names in the field - he consulted with many of the Wall Street firms and was frequently quoted in the press.
He used this phrase in the context of market valuations and market sentiment. He talked about the historical reality that markets inevitably swing from one extreme to another, from periods of outlandishly elevated valuations to ridiculously beaten down levels, and from periods of unquestioned euphoria to absolute pessimism.
“The pendulum never stops in the middle” applies in lots of other cases.
Look at the today’s attitude to risk and leverage, especially as it is portrayed in the media. Companies that were fiscally conservative and didn’t borrow to the hilt to boost profits were criticized for failing to maximize shareholder value. (The most popular article in the online New York Times recently was a piece laying out Canadian banks as the model for the global banking system - a notion that six months ago would have been completely absurd.)
Consider investors’ attitudes to owning resource stocks. Not long ago loading up on these was all that many investors wanted to talk about, but today they don’t even want to hear about owning resources.Display article as PDF for printing.
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