It looks like that the great crash of 2008 will continue to haunt the investment markets much longer than seems reasonable.
We’ve often heard the phrase, ‘Too big to fail’ in connection with the crisis, but what we are seeing now is perhaps a case of too big to forget. Since October 2008, at every step along the way, investors of all types and sizes seem to be in constant fear that those days could be back at any point without much of a warning.
I’m not saying that the past should be ignored, but this particular attitude is paradoxically resulting in an excessively short-term attitude among investors whom I know. Every investor pays obeisance to the idea that strong growth will continue in India and many other emerging markets, but the commitment to identify stocks and invest in them over the long-term is a lot less than it was in the past. Back in 2006 and 2007, valuations were much more stretched, and investing meant going out on a limb to a much greater extent than it does now.
However, investors were much more willing to commit long-term. Now, it’s like being in a room with people who, having survived a fire, insist on sitting next to an exit all the time. The moment it gets a little warm, there’s a stampede to get out of the room. To be fair, you can’t really blame anyone for this.
However, I think that 2008 has changed investor behaviour in a way that previous episodes didn’t. It’s a cliché of investor behaviour that people forget quickly and pretty soon start behaving exactly as they did before, but perhaps the 360-degree nature of that crisis has introduced a completely new element in investors’ psyche.
Now, at least at the back of everyone’s mind, there’s an idea that almost any event anywhere in the world could turn into a bottomless pit with very little warning.