‘The Psychology of Money’ author Morgan Housel gives advice to investors afraid of market downturns


"Calm plants the seed for crazy"… or, investing in the inevitable

The author behind the best-selling book “The Psychology of Money” is trying to relieve investor anxiety over market downturns.

“Realizing how inevitable it is makes it more palatable to deal with when you go through it,” author and behavioral finance expert Morgan Housel told CNBC’s “ETF Edge” recently.

It’s one of the major themes in his new book: “Same as Ever,” which was published in November.

Housel, a partner at the venture capital firm the Collaborative Fund, contends a recession is not an “if” but a “when,” and that knowing this can make it easier to manage expectations.

“The bear market plants the seeds for the recovery because people get scared into action,” he said. “All the new technologies come about because people are motivated by fear.”

He also advises investors to always have a plan for surprise events because they can catch the market off guard.

“[The financial system is] very good at predicting what the economy and the stock market are going to do next — except for the surprises,” Housel said.

Housel added these surprise events, such as natural disasters and pandemics, tend to be all that matter in market shakeups. But just as the market eventually stabilizes, even times of calm can also “plant the seeds for crazy.”