My daughter thrives on fashion; she understands trends. She would never follow the trend in this photo. Everyone follows a trend, a pattern, a paradigm. We find one or create one. You have to admit, the young women pictured are creative.
We are trend-makers. Our behavior prompts outcome whether for profit or for loss. When investors become depressed, their distraction distorts reality. What may be bad becomes worse, and the difficult becomes terrifying. Confidence in proven investment methods is abandoned while emotion drives decisions. We do this when markets advance and when markets decline.
“There are only two emotions in the market-hope and fear. The problem is, you hope when you should fear, and you fear when you should hope.” – Jesse Livermore
Even pension plan administrators, endowment fund trustees, and major family foundations question their discipline and mission during market corrections. Fortunately for institutions, decisions are made by more than one person. At times, committees work through decisions effectively.
This market event will most likely be called a stock market anomaly. It’s not, and most likely will happen again. If not in this generation, in the next. Human nature finds risk delicious.
The market events of the past two years have undermined investment psychology, destroyed some companies that are poorly managed, and crippled well-managed companies dependent on bank lines of credit to remain solvent. No CEO could hide, no stock, bond, or real estate portfolio could hide.
Despite pervasive setbacks, investment discipline and methods are not abrogated. What worked in the past, will work in the future. Excessive risks taken in the past remain excessive. “There’s nothing new under the sun” or on Wall Street.
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