Broken Clock Syndrome

Whenever there is a stock market crash, there are sundry analysts/ investors/ economists/ bears, etc who proclaim that they had seen the crash coming, and that they had been predicting it since before the crisis.

Yes, there are some people who have a thought process that them to look at every stock market boom with a skeptical eye and judge whether it has been built on a shaky foundation. However, there is another group, the Perma-Bears, who are more often than not bearish on the economy and the markets. They emerge into the limelight when the market starts to move downward and then retreat into the background when the media moves on to the bulls when the market starts to move upward.

This is what is known as the Broken clock Syndrome. i.e. Even a broken clock is right twice a day. (A.M & P.M). Perma-bears are highly invested (I don't mean financially invested, but professionally), in down-markets, as these are the times when they get the highest amount of attention from the media and investors.

Investors who follow them might end up missing out on big returns. For instance, despite the market rebound in March 2009, Nouriel Roubini kept on predicting a double-dip recession, and many fearful investors decided to wait and watch. Before they realised the Sensex and Nifty had moved to much higher territory and they found themselves unable to enter due to higher valuations.

The conclusion: While it is difficult to precisely predict and time crashes and make investment decisions accordingly, it is still very useful to be follow the writings and talks of perma-bears. They serve as a valuable reality check. At the end of the day, it is upto the investor to follow his own instincts and make his own decisions. After all, if the perma-bears were really so effective, they would be billionaires, and not eternal optimists like Warren Buffett and Rakesh Jhunjhunwala.