Taking cognisance
Knowledge of Cognitive Therapy is immensely helpful in combating panic. It may be that our anxieties right now are being fed by selective biases in our thinking—biases shared by millions of us who are watching the news. How can we be more rational?
How can we cure our financial panic attack? Here are some cognitive distortions that are possibly driving financial anxieties:
Catastrophic Thinking
It’s almost as if five minutes can’t go by watching the news without hearing catastrophic statements. But is there a catastrophe and will there be one? What is a financial catastrophe? Is it anything like the market dropping 89 % in the 1930s from its high and losing about 14.5 % per year for about six years until it mildly recovered by about 2 % in 1941? Further-more there was no medical aid, no unemployment insurance, no social security, no net to catch people in back then. People were falling from a low level of real wealth to begin with. So many people were destitute. Whilst this is still a reality for some South Africans it is, nevertheless, better than it was. Some people believe it’s a catastrophe to lose 20% in an overvalued stock portfolio, not recognising that they still have 80% of what they had before.
Some will claim we are heading toward a catastrophe. There are two ways of looking at these predictions. One is that it is possibly true if nothing is ever done. Second, it is not true, because it is inconceiv-
able that even the ANC can’t get its act together.
Fortune Telling
Even though many people predict a recession, what is remarkable about the economy is how few recessions we have had in the last 25 years. And people survive recessions. A recession is two consecutive quarters of negative growth. That might mean that a business netting one million Rand might net R950,000. This is hardly hunger in the streets.
Discounting the Positive
This is rampant in how individuals and journalists respond to the crisis we are facing. One factor that is being mentioned is the potential for property values to be affected. It is a possibility but in Cape Town, where 50 square metre apartments sell for over 2.5 million, perhaps a slowing down of the property market is not such a bad thing. This could possibly mean that property loses value for now but if you are not selling your house this year, take a nap.
A lot has also been said about the rising fuel price. And yes it is a concern as the consequence will definitely be higher prices of consumer goods. However, fuel prices are considerably higher in many other
parts of the world. GlobalPetrolPrices.com publish the most wide-ranging and reliable data on retail fuel prices around the world tracking over 150 countries on a weekly basis. In their most recent report it can be seen that Venezuela pays the least for petrol at $0.01 per litre which roughly works out to 13 cents (in South African Rands) while drivers in Hong Kong can pay up to R31 for the same litre. In Africa Malawi pays R17.47 and Zambia R21.77 making SA the 5th highest in Africa. Not good but not the worst.
Selective Filter
There is currently considerable focus on the expropriation of property…and rightly so. However, the ANC’s election head Fikile Mbalula said that property rights in South Africa were not under threat, and that there was no intention to grab land. “The ANC position on expropriation with-out compensation is for specific circumstances in the land reform process. This is aimed at supporting open commerce and certainty,” Mbalula said. What isn’t entirely clear are the “specific circumstances”. However it is highly unlikely to include your house or business premises in the suburbs.
As many of you know, there is a field of economics called “behavioral finance”. It is cognitive therapy applied to investors. These are the times that we can really help people get a handle on reality. Examine the way that you are looking at recent news and chill…rationally.