
Hope is not an investment thesis
Investor pain in the final quarter of 2018 has seemingly faded from memory, based on the rerisking across global equity and credit markets in the first two months of 2019. This prompts the question: Were investors too pessimistic then or are they too optimistic now? To my mind, the answer is yes to both. The real answer is that the market suffers from recency bias — the tendency to remember recent events better than those that happened earlier — and it tends to get whipsawed by nonmaterial information. Have the facts materially changed since last quarter to cause such volatility? Let’s review.