7th February 2019
Welcome to Rational Exuberance.
The team here at Equitile constantly analyse the world around us and so we decided to launch a new blog as an informal way (you can expect the odd typo!) to share some of our observations, insights and ideas with our clients.
We have called the blog Rational Exuberance to remind ourselves to pay due attention to the positive processes of innovation which drive economic growth and, ultimately, investment returns. Naturally, we remain alert to risks, and we will share our thoughts in this respect, but we endeavour not to fall too far into the very human trap of focussing unduly on hypothetical negative scenarios – especially those which dominate the media. To gain a deeper understanding of why we think this way, we recommend the late Hans Rosling’s Factfullness or our own synopsis of his work The Anxiety Machine.
Our title, ‘Rational Exuberance’, is of course a nod to the famous ‘Irrational Exuberance’ phrase coined by Alan Greenspan, Chairman of the Federal Reserve, in a speech to The American Enterprise Institute in December 1996. He asked: “how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
When he made that speech the US stock market had rallied 200% over the previous decade. His thinly veiled warning of irrational exuberance looked eminently sensible and doubtless encouraged some prudent investors to divest their holdings.
A little more than two decades on from the Irrational Exuberance speech the US stock market has rallied another 280%.
In the years since December 1996 there have certainly been some wrenching financial crises. Nevertheless, innovation has continued driving economic expansion, people around the world have become healthier and richer and the investors that remained rationally exuberant over the time have enjoyed the benefit of that progress.
In coming decades there will doubtless be more financial crises and market setbacks, but there will also be innovation, economic growth and, we are sure, good investment returns to be enjoyed.