What can the Halley’s Comet panic of 1910 teach you about the importance of staying calm while investing
Since the dawn of man, we have looked up at the stars and imbued the various celestial bodies across our night sky with God-like power and importance. As our understanding of astronomical elements such as asteroids and comets has grown, so has the use of the related term – “planet killer”.
In 1910, Halley’s Comet’s trajectory took it unusually close (by astronomical standards) to Earth’s orbit and this led to the astronomer Camille Flammarion predicting that it might end all life on Earth.
Flammarion’s theory was published in the New York Times despite almost every other astronomer at the time disputing Flammarion’s claims. The article sparked widespread panic and fear-mongering across the globe as people acted irrationally to the news that the world might be about to end.
In the present day, we know two important things. Firstly, the world didn’t end, and secondly, Flammarion’s claims were unfounded and there never was any risk at all.
Investing during times of panic or instability can lead to the same elevated emotions. The worry associated with potential losses can at times feel like the world is ending and cause investors to act against their best interests.
Discover a few valuable lessons we can learn from the story of the Halley’s Comet panic of 1910 about how to approach investing during volatile periods.
An emotional bias known as “loss aversion” can lead to knee-jerk financial decisions
In 1910, the panic spiralled in a way reminiscent of how conspiracy theories today end up being passed around online forums until they end up filtering into mainstream news. Superstitious folk in all corners of the Earth muttered outrageous claims.
As Halley’s comet approached Earth, it was said to bring about the death of King Edward VII. It was also considered to be an omen of a coming invasion by German forces.
In France, the populace blamed it for the flooding of the river Seine. In Korea, people simply stopped showing up for work and began to idly drink their days away.
One particularly apocalyptic member of the public wrote to the Royal Observatory warning that the comet would “cause the Pacific to change basins with the Atlantic” and that there would be a great whirlwind that would sweep up homes, ships, forests, and deserts in a cataclysmic storm.
Of course, none of this happened and there’s no reason to believe the comet’s passing caused the death of monarchs or was to blame for environmental disasters. However, when people are afraid, they tend to act in irrational ways.
Investing decisions can be negatively affected by allowing fear to influence your choices
This occurs in the world of investing as well. In times of economic instability when the markets fall and potential losses loom for investors, an emotional bias known as “loss aversion” can sway investing decisions.
The theory posits that human beings feel the pain of losses twice as strongly as the pleasure of gains. In falling markets, the fear of potentially losing significant value on your investments can lead you to cash in and convert a paper loss into an actual loss.
This knee-jerk reaction can make you feel “in control” in the short term but can effectively lock in the very thing you were afraid of — a loss — and can have detrimental effects on the long-term outlook of your portfolio when markets eventually recover.
Investing is typically a long-term strategy and is often best served by a “buy and hold” approach in which you seek positive returns over periods of years or decades, rather than chasing short-term gains. Investments kept over the long-term trend towards positive returns.
Allowing fear to control your investing decisions may also mean you take on too little risk with your investments. In doing so, your “safe” choices may see far less ebb and flow in their market value, but they will also be unlikely to see the kind of growth needed to achieve your long-term goals.
Avoiding “too good to be true” offers can protect your money from unscrupulous individuals
The astronomer, Flammarion, approached his analysis of Halley’s Comet with typical French despair, positing that as our planet passed through the comet’s tail, a cloud of cyanogen gas would impregnate our atmosphere and in his words: “possibly snuff out all life on the planet.”
The New York Times published Flammarion’s theory and informed its readers that: “Cyanogen is a very deadly poison, a grain of its potassium salt touched to the tongue being sufficient to cause instant death”. It’s not hard to see why some members of the populace viewed the comet as a coming doomsday.
In fact, this would turn out to be untrue, as many other astronomers tried to point out at the time. The gas trail was simply too thin to pose any real threat to the Earth’s atmosphere.
This didn’t stop unscrupulous individuals from taking advantage of people’s panic and selling fraudulent “comet protection”.
Fraudsters sold anti-comet pills that promised to protect individuals from any ill-effects. One particular brand promised to be “an elixir for escaping the wrath of the heavens”.
In Texas, two charlatans were arrested for selling sugar pills as a cure-all. Comet insurance was sold to worried individuals and gas masks flew off store shelves.
When people act irrationally, there is opportunity for unsavoury characters to make a profit.
This is true in times of economic instability too. It is not unusual to see cases of fraud and scams rise during unstable periods for the economy as people seek some kind of magical solution for their financial woes.
If you are approached with a proposition that seems “too good to be true”, it is best to view it with caution and seek professional advice before parting with any funds.
Sound advice and historical hindsight can help you make the right choices
As the comet peacefully passed by, churches rejoiced, and the more rational humans were able to see the comet for what it really was: a spectacular cosmic event that occurs once in a lifetime.
Those who did their research and followed the advice of the scientific community were unlikely to have disrupted their day-to-day lives or taken part in crazy investments.
Halley’s Comet passes the Earth almost every 75 years. In doing so, we learn more about its nature and its processes and pass that knowledge down the generations.
History can be a vital resource. In coming to investing decisions, taking a look at how markets fared after previous periods of instability and in the decades after, can help you act with a degree of evidence-based decision-making, instead of leading from the heart.
Don’t panic when you read about one mad Frenchman proclaiming the worst, instead seek out professional advice and make informed decisions on your future.
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A call to your financial planner could put you on the path to meeting your retirement goals and set you up financially for any additional years a change in lifestyle might bring.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
15 Nov 2022
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