Wall Of Worry

What Is The Wall Of Worry?

The "wall of worry" refers to a tendency in financial markets for stocks to rise in the face of seemingly difficult or insurmountable problems. It usually turns out, however, that these problems—though serious—are temporary and eventually resolved or able to be put off to the future.

Generally, stocks are able to "climb the wall of worry" because many investors see potential problems as a reason to "buy on bad news," which usually means stock prices have fallen and thus represent a bargain. Conversely, once the crisis has passed, these investors then "sell on good news" because prices have rebounded and they can take profits.

Indeed, history is filled with such instances. Some have been extremely serious, such as the 2008 financial crisis and the 2001 terrorist attacks, for example. But others are less so, such as periodic economic slowdowns. Although recovery times vary from a few weeks or months to sometimes several years, history has shown that stocks eventually rebound to their previous levels and then move on to new heights.

The market's ability to "climb the wall of worry" is often seen in retrospect, which reassures investors that the next crisis will also be overcome. On the other side, many investors take an excess of positive news as a sell signal and a reason to worry that the good times will eventually end—i.e., stock prices have nowhere to go but down— and thus sell at what they perceive to be the top.

Summary

The "wall of worry" refers to the tendency of stocks to rise in price despite seemingly difficult obstacles but which later prove to be transitory and thus surmountable. "Climbing the wall of worry" is similar to investors buying stocks on bad news, which usually means when prices are low, and then selling when the problems have passed and prices have recovered.