Investors were rattled in 2015 when stock markets staged a broad retreat in response to faltering Chinese economic growth and tumbling commodity prices. John Carswell, the president of Canso Investment Counsel, told Financial Pipeline that there really wasn’t anything new or surprising about this correction, we’ve seen so much of this before.
JC: Well, when you are in the financial markets, you realize that financial markets are human beings and human beings are predisposed to certain behaviours. So, if you go back…I’ve read a really good book recently on the French financial crisis of the 1700s that eventually lead to the French revolution. People were investing in stocks, there was no fundamental basis for it, they blew up the French economy, they ended up with the French revolution and they literally had heads rolling in the streets. So, if you go back into human history, you’ll see you have these periods where people go crazy with optimism and greed, and then on the downside they’re paralyzed with fear.
I went to a military college and I had to study military history. When you take military strategy and leadership, you find out that you need a very disciplined army to not flee in terror when you take casualties above 50 per cent. So, that was kind of a rule of thumb, so it’s like okay, you’re a bunch of really motivated soldiers running forward, screaming with your swords in the air and when the guy besides you gets killed, you think, maybe I should run in terror and that’s actually self-preservation. So when you look at the psychology now as people study, they start to realize that humans aren’t efficient.