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How does what is called a normalcy bias pose a threat to investors?

Bob Wiedemer
July 6, 2016
Video Transcript

Announcer: How does what is called a normalcy bias pose a threat to investors?

Robert Wiedemer: We all have normalcy bias. Right now, the bias is towards a Fed supported market. So, we think, "Hey, if the Fed has been able to support the market since 2009 and got us out of the crisis, they're heroes and they can do it forever, or maybe we don't need it or something, but whatever it is all is good." Problem is that's not really true. We didn't really solve any problems in 2008-2009. We just pumped up a bigger "bubble" to keep it up. The problem with the next downturn, and there are few people really believe there won't be another downturn, we're all kind of thinking that and hoping that just like the Federal Reserve never predicts a recession, right...but we all kind of know that if you look at each other in the eye that there's probably another downturn coming in the economy and the stock market. The problem is this time, you've already pumped up those values that the same rescue, the same antidote to 2008 ain't going to work any more. Just print money...is the reason you're probably going to have a big downturn in the future, is as if, people losing confidence in just printing money to boost the stock market, to boost the economy here and around the world. So, be careful in not thinking, or forgetting about 2008, and be also more careful about thinking that the antidote that worked in 2008 will work again in the future--it won't.

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