The Four Horsemen of the Apocalypse

Charlie Bowers Income Planning, Insight Investing Video, Investing, Investing & Planning, Risk Management

Sounds ominous, doesn’t it.  And if you’ve read the last book of the Bible, called the Book of Revelation or the Apocalypse, you understand that the appearances of these four horsemen represent a truly foreboding and horrific sequence of events that devastate life on the earth.  But that is a discussion for another time.

This article will focus instead on the devastating effects of The Four Horsemen of the Investment Apocalypse.  I read this phrase from a financial article a few weeks ago and the thinking intrigued me.  There is an investment book by Robert J. Klosterman CFP addressing four horsemen as well, but I will not be using his illustrations in this exercise.

So who or what are the four horsemen of the investment apocalypse, what do we have to fear from them, and is there anything we can do to prevent or minimize the destruction they bring?    At the moment, I don’t know because I haven’t written the end of this composition yet.

The Four Horsemen of the Investment Apocalypse

I believe that good representations of The Four Horsemen of the Investment Apocalypse are fear, greed, hope, and ignorance.  I am confident that these mind-sets or dispositions have wiped out more portfolio value than virtually any bear market and will continue to do so well into the future for the unprepared.  So let’s look a bit closer at the definitions of these terms, and I’ll take a chance and use some of Wikipedia’s online content:

  • Fear - A feeling induced by perceived danger or threat that occurs in certain types of organisms, which causes a change in metabolic and organ functions and ultimately a change in behavior, such as fleeing, hiding, or freezing from perceived traumatic events.
  • Greed – An inordinate or insatiable longing for material gain, be it food, money, status or power.
  • Hope - An optimistic state of mind that is based on an expectation of positive outcomes with respect to events and circumstances
  • Ignorance - A lack of knowledge. The word ignorant is an adjective that describes a person in the state of being unaware, and can describe individuals who deliberately ignore or disregard important information or facts, or individuals who are unaware of important information or facts.
Flee the Horsemen

I would say that the first three horsemen, fear, greed, and hope, fall into the category of emotions.  These emotions can cause us to make investment decisions based on how we are feeling at the time, and “at the time” can be initiated by market volatility, “expert” opinion, life is just going great, or any other stimuli that trigger our tendencies toward these three horsemen.  Fear and greed are pretty easily understood and typically carry a negative connotation.  I suspect most everyone agrees that decisions based solely on fear and/or greed can truly be damaging to our investments and future.

Hope on the other hand typically carries a very positive connotation, although hope can also be the basis for emotional responses and poor decisions as well.  If we hear someone say, “I’m hoping I chose the right investment and that it’s going to grow like I need it to,” don’t we tend to think that this person could be asking for trouble?  Basing investment decisions on our expectation of positive outcomes without any real or ongoing supporting evidence is a recipe for disaster.

The last of the horsemen is ignorance.  When it comes to investing, ignorance isn’t uncommon and it really isn’t an emotional decision.  I would say ignorance may actually possess an element of logic because one is consciously making this choice.  And when one chooses to be ignorant, it is very often ignorance as a result of laziness.  And investment decisions made while clinging to ignorance can result in even greater disaster than decisions based on fear, greed, or hope.

So the case has been made that the four horsemen of the investment apocalypse can lead to poor investment decisions, which in turn can quickly, efficiently, and effectively wipe out value in a portfolio.  So the question is, what can be done to avoid these horsemen, or what can be done to minimize the damage they can inflict on a portfolio.

Corral Those Horses

If you are anything like me, you’ve experienced the four horsemen of the investment apocalypse in one way or another.  We are emotional beings, so fear, greed, and hope are not unknown to us.  Sometimes a laziness in some areas also finds its way into our lives.  Acknowledging that we could all fall prey to these horsemen is the first step in preventing them from “owning” us.

So let’s see if we can pen them in so that our portfolios aren’t robbed by the likes of them.  Since we are trying to protect our golden years, should we consider this a Golden Corral?   Don’t roll your eyes!

The fencing of our corral must be strong enough and tall enough to keep us separated from the four horsemen.  Unfortunately corral fencing is still typically where we can see into the corral. This means that we will not be able to totally remove the horsemen from our lives, but at least there is a barrier to give us some degree of protection.  So what do we use as the corral fencing?

The first thing to consider in the construction of our barrier is to determine what to use to fill the void in our decision-making process after we’ve separated ourselves from the horsemen.  Perhaps logic and knowledge will do the trick.  We can replace emotions with logic and replace ignorance with knowledge.  I’ve often said that the application of knowledge is wisdom, so we definitely need to apply our logic and knowledge to make wise investment decisions.  At Insight Folios, we believe that our Simplicitree® software and process are the tools that create the foundation of the corral.  They also provide the logic and knowledge for the fencing material needed to make sound investment decisions that enhance our future rather than destroy value.  And investment decisions made based on unbiased mathematical calculations, coupled with investments that pay us while we own them, complete that significant and substantial barrier around the four horsemen of the investment apocalypse.

Now, if only we could bury the horsemen instead of simply corralling them, because they sure keep looking like desirable horses we are tempted to ride, don’t they?