Double-Decade Thinking Avoids Duration Neglect

Advice to the Advisors

Calendar Representing Double-Decades of the U.S. Stock Market | Sheaff Brock

Double-Decade Thinking Avoids Duration Neglect

As the decade draws to a close, the first since 1850 in which the U.S. did not experience a single recession and a ten-year period in which the stock market hit more than 200 new all-time highs on the S&P, investment advisors would do well to prep for client meetings by reviewing a certain chapter in the little book, The Power of Moments.

Research has found, authors Chip and Dan Heath report, that “when people assess an experience, they tend to forget or ignore its length, a phenomenon is called ‘duration neglect.’” People tend to rate an experience based on two key factors: the best or worst moment and the ending, ignoring its duration. Viewing a chart of stock market results over the past decade, it is easy to focus is on the preponderance of “best-moment” highs and very positive decade-“ending” results.

Chart of U.S. Stock Market Total Return by Decade | Sheaff Brock

Still, it would be a ‘duration neglect’ mistake of the first order, Sheaff Brock Managing Director Dave Gilreath stresses, to make investment decisions based on our recall of the past decade alone. Stock market results in the decade prior to this one, Gilreath reminds us, were so terrible that the combined 20-year period just ending has been the second worst double decade in history! (By way of reminder, from 2001-2010, we lived through two recessions and two enormous stock market crashes.)

Chart of U.S. Stock Market Double-Decade Total Return | Sheaff Brock

But, just as focusing on our “best” or “ending” moments would represent a mistake, advisors must explain to clients it would also be a mistake to focus on that 2000-2009 “worst moments” decade, allowing fear to paralyze judgments and investment decisions going forward. Even as our clients are bombarded with inferences in the media that our unprecedented ten-year run is a signal that bear markets are due to make their “regularly scheduled appearance,” advisors would do well to encourage thinking in double-decade increments.

At Sheaff Brock, Gilreath asserts, the bet is that a really good twenty-year period will serve as a “natural” follow-up to the truly poor double decade just ended.

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