A pendulum always goes too far, swinging to one extreme on the left, then to another on the right before eventually wearing itself out and settling down, centering itself, in the middle. The pendulum is a terrific analogy for the swings of the market place, for the currents of emotion that often attempt to tug us away from our chosen path.
Four lines from Kipling’s poem “IF” vividly illustrate the need to stay cool, calm, collected and centered in times of great emotional turbulence:
” If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you, But make allowance for their doubting too.” – “IF” by Rudyard Kipling, 1865-1936
The advantages of having a contrarian component to your thinking are many. Warren Buffett advises, “Buy when others are selling, sell when others are buying.” and Keynes said “The markets are moved by animal spirits, and not by reason.” However, it may take a LONG time for the pendulum to settle down; Alan Greenspan, as then Chair of the Federal Reserve, gave his “Irrational Exuberance” speech THREE years before the dot.com boom went bust (for you young-ins that was the last economic downturn before the Great Recession, nowhere near as bad, cause it was pretty much confined to one sector of the economy). Or to further quote Keynes: “Markets can stay irrational longer than you can stay liquid.”
Every analogy breaks down at some point and the pendulum analogy has its limits. Some will focus on the limits of any truth, others focus on the wisdom to be garnered.
“The pendulum of the mind alternates between sense and nonsense, not between right and wrong.” – Carl Jung, 1875-1961
“History has always been a series of pendulum swings, but the individual doesn’t have to get caught in that.” – Robert Johnson
“I think that gravity sets into everything, including careers, but pendulums do swing and mountains do become valleys after a while… if you keep on walking.” – Sylvester Stallone b. 1946
“Opinion is like a pendulum and obeys the same law. If it goes past the centre of gravity on one side, it must go a like distance on the other; and it is only after a certain time that it finds the true point at which it can remain at rest.” – Arthur Schopenhauer, 1788 – 1860, German philosopher, among first to contend that at its core, the universe is not a rational place.