It Didn't Take Long to Forget the Very Recent Past

By Markets Fool.com

I remember it like it was yesterday...

Continue Reading Below

Gasoline prices in my hometown were below a single U.S. dollar per gallon.

I had just turned 16 and was driving on my own, in my own car, for the first time. It had a manual transmission and a four-cylinder engine.

For a high-schooler working a part-time job, it was the perfect combination of low prices and tremendous fuel mileage. Costs associated with driving were the least of my worries.

And, based on my observations, I wasn't the only one excited to take advantage of low gas prices.

Everywhere I looked, full-size Sport Utility Vehicles (SUVs) were taking up space in parking lots and on highways around town. It was a time of transition for many domestic auto manufacturers.

Continue Reading Below

The late 1990s and early 2000s witnessed a dramatic uptake in the sales of these vehicles. In my mind, there were a few factors behind this story, including the likes of Ford and General Motors pushing them because of the higher margins SUVs carried.

However, these initiatives also coincided nicely with low prices at the pump.

(Don't get me wrong. I'm not trying to say that many people didn't need a truck or SUV for work or family life, but cheap gas likely had an impact on many new sales.)

Blast from the past
Remember back in January 1995, when unleaded gasoline averaged just $1.13 per gallon? Things remained pretty advantageous for the next decade. Prices undulated within a range of $0.96-$2.04 per gallon.

Data source: EIA.gov and StatCan.gc.ca. Chart: author.

Beyond January 2005, however, those who rushed out to buy the biggest gas-guzzler on the lot likely began to regret that decision. You see, prices were noticeably on the rise in both markets.

It only took a few months for the general public to wise up -- as evidenced by the tumble SUV sales took in August (as a percentage of total light vehicle sales). This trend continued while prices continued their upward trajectory for the few years.

And then, the financial crisis struck, and the price to fill up the tank came back to earth. This all coincided nicely with a severe drop in oil prices in late 2008.

Sound familiar? (Minus the financial crisis, of course.)

While it took a few months for consumers to catch their bearings, light truck and SUV sales began to find their nadir in the summer of 2009. All told, sales suffered through four years of falling performance before regaining their stride.

Data source: Bureau of Economic Analysis. Chart: author.

"The Crash" part deux
Now, if you compare the two charts above, you can see why the tremendous spike in 2010 was short lived. Gasoline prices rebound nicely... until May 2014. Shortly after this date, when gas station attendants must've found themselves adjusting prices lower seemingly on a daily basis, we began seeing headlines like these crop up:

"The Hummer is back. Thank falling oil prices."--The Washington Post, 11/10/2014

"Drivers trade up as gas prices fall"--The Star, 1/6/2015

Quite a few of our fellow Americans were right back to their 2008 mind-sets without even second-guessing themselves. I couldn't help but feel a sense of deja vu and chuckled to myself, wondering how folks could possibly base a buying decision that could saddle them with the burden of poor gas mileage for the better part of a decade, on current low gas prices.

That's why headlines like this resonate with me:

"Cheap Oil and SUVs are a Sucker's Bet"--Valley News, 1/26/2015

Based on projections, it doesn't appear that the recency bias is prepared to subside any time soon.

Foolish bottom line
Much like in investing, we need to be aware of basing important buying decisions on short-term characteristics. Already, gasoline prices are threatening to make the record number of people buying light trucks and SUVs scratch their heads as to why. To start the month, gas prices lifted off of their six-year lows, and consumer confidence, whether as a result or coincidence, slid for the first time in seven months in the States.

To turn to investing, it'd be easy to get caught up in the current bull market and believe that nearly every company is worth investing in because the S&P 500 index is up 67.4% since the beginning of 2012. That simply isn't the case, unfortunately.

If you're investing for retirement, your kids' college education, their retirement, etc... it's important to keep emotions in check and focus on businesses that will be successful regardless of how well the entire stock market is performing. You want the outliers, not the herd.

For those interested in finding a long-term energy stock you can rely on, The Motley Fool has one stock we believe you should take notice of.

The article It Didn't Take Long to Forget the Very Recent Past originally appeared on Fool.com.

Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.