For those who went through any of the following:— Scheplick (@scheplick) March 11, 2020
the Christmas Crash
Great Financial Crisis
How does this compare?
1/I went through all of them. I've found that speed and uncertainty seem to deepen the emotional pain investors go through in volatile, bear markets. When there is a convenient narrative available that appears plausible to the majority, the emotional pain seems lower. Thus,— Jim OShaughnessy (@jposhaughnessy) March 11, 2020
2/ The https://t.co/yOuNd7BExq "crash" which was really an extended bear market based mostly on valuation, didn't cause nearly as much emotional pain for many investors because it seemed like it was the pretty logical repricing of hugely overvalued assets. In contrast, the— Jim OShaughnessy (@jposhaughnessy) March 11, 2020
3/ crash of 1987 was truly a WTF moment for investors. Like a freak storm that materializes without warning, it freaked investors our badly because there was no easy narrative available for why it happens. Without narrative, we panic much more easily, as it rips at our— Jim OShaughnessy (@jposhaughnessy) March 11, 2020
4/ "illusion of control" and, as I've mentioned in several threads, that is a gut punch to the human psyche. This current bear market has a very believable narrative (A novel "new" danger named #COVID19 comes out of seemingly nowhere and escalates rapidly plus an exogenous— Jim OShaughnessy (@jposhaughnessy) March 11, 2020
5/ shock to the energy market) creates a near perfect storm where people are forced to confront new and scary things immediately which often causes the flight or fight emotional centers of our brains to take full command. When this happens, events and investor's actions seem— Jim OShaughnessy (@jposhaughnessy) March 11, 2020
6/ illogical to some but very necessary to many. Our attention telescopes and becomes extremely narrow; feedback loops dramatically shorten and a negative information cascade begins where all we can "see" is confirmation of our worst fears. Add to that the mimetic nature— Jim OShaughnessy (@jposhaughnessy) March 11, 2020
Incredible thread.— Scheplick (@scheplick) March 11, 2020
Thank you. 🙏
I just learned something new and I think many others will also after reading this.