The HBO documentary: Time Bomb Y2K premiered on December 30th, 2023, recounting the mass hysteria that swept across the World as a computer bug threatened to disrupt numerous critical infrastructures. On its surface, the film’s intention was to highlight both the power and vulnerabilities of technology – but to me it was a case study in the wider-ranging field of human behavior.
Peter de Jager is featured in the film, a former IBM employee who claims he first became concerned about the “Y2K bug” in 1977. Later, in 1993, a short essay he authored on the topic was published in the IT magazine Computerworld. Despite these early warnings from de Jager and other credible sources, the problem wasn’t seriously dealt with on a broad scale until much later in the 90s.
As you can imagine – or recall through your own experience – the public’s reaction to the Y2K bug once it became “newsworthy” was incredibly broad. On one extreme, people wrote off the Y2K bug as a hoax. On the other, families sold off their assets to fund an entirely new lifestyle off the grid.
Two things stand out to me here:
- We (humans) tend to underreact to information that we believe will only affect us in the future (procrastination).
- We (humans) tend to overreact to information that we believe will affect us in the near term (recency bias).
If you are wondering why am I writing about events that occurred nearly a quarter century ago, I promise we will tie this back to current investment strategy – but first I hope you will indulge me further on a more prescient topic:
In October 2023, the PRRI – a nonprofit, nonpartisan research institute – published the results of their 2023 American Values Survey, revealing some eye-opening responses:
- 75% of all Americans agree that “The future of American democracy is at stake in the 2024 presidential election.”
- 23% of all Americans agree that “Because things have gotten so far off track, true American patriots may have to resort to violence in order to save our country.”
- Republican, Independent, and Democratic respondents ALL saw significant increases in agreement to this statement since the last survey in 2021.
Perhaps this should come as no surprise, as those of us who traverse the social media landscape are all too familiar with the polarization that seems to be permeating through American society. Neil Howe, the demographer who coined the term “Millennial Generation” prophesized that the United States would enter a crisis period beginning in the late 2000s, which he detailed in his book The Fourth Turning, published in 1996. More recently, Neil published a follow-on book titled TheFourthTurningisHerewhere he posits that the “Fourth Turning” (crisis period) began with the Global Financial Crisis in 2008 and is likely to last approximately 20-30 years.
Before we sell off our assets and establish our doomsday bunkers in the country, let’s remind ourselves that the Y2K bug turned out to be “the bug that didn’t bite” – but it did cost governments and corporations globally hundreds of billions of dollars to avert. While we don’t have hundreds of billions of dollars to invest (yet!), we are diligently working on our clients’ behalf to put them in what we believe to be the best possible position to avert potential crises while simultaneously offering them the potential to realize returns commensurate with their financial goals.
The markets are highly complex machines driven by far too many variables to know, let alone list here. While we do not have a crystal ball, we do have a process that we believe will stack the longer-term probabilities in our clients’ favor. Adherence to a process seems to be the key to most successful businesses and is almost certainly the key to attempting to remove human emotion from the equation.
Consider this: Peter Lynch managed the Fidelity Magellan Fund from 1977-1990 and annualized an eye-popping return of approximately 29% annually. By all accounts, Peter Lynch is an investment industry legend. However, according to Fidelity, the average investor in the Magellan Fund actually LOST money! How is this possible? It’s quite simple actually – investors flocked to the fund AFTER periods of incredible performance and sold out of the fund when they subsequently experienced more pedestrian returns.
Much like the extreme reactions to the Y2K bug, it is easy to dismiss this behavior as stupidity when operating with the power of hindsight. However, I would imagine that the people who made rash or suboptimal decisions were incredibly sure of themselves at the time. We as human beings are biologically wired to be bad investors. We have learned through many years of evolution that if a building is on fire, you should probably leave – and you most certainly shouldn’t go in! Often in investing, it is exactly the opposite.
While we at Legacy Investment Strategies remain human, we try our best not to be when it comes to making investment decisions on behalf of our clients. We believe that working for the individuals, companies, and families we serve is our highest calling. There’s always a bull market somewhere, and we are trying to find it. We hope that our clients remain steadfast and patient as we continue to do all that we can for them.
As always, please do not hesitate to contact us with any questions or concerns. We are here to help in any capacity we can.
With Sincere Thanks,
Your Team at Legacy Investment Strategies
Advisory services are offered through Legacy Investment Strategies, LLC, an Investment Advisor in the State of Louisiana. Securities offered through Crown Capital Securities, L.P., Member FINRA/SIPC. Crown Capital Securities, L.P. and Legacy Investment Strategies, LLC are separate entities, independently operated. Insurance products and services are offered through Independent Agents
All content is for information purposes only and should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents where it is not appropriately registered, excluded or exempted from registration or where otherwise legally permitted. It is also not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Investing always involves risk and possible loss of capital.
