This is your brain on a crashing stock market

https://www.wsj.com/articles/this-is-your-brain-on-a-crashing-stock-market-11584615601

by yarapavan • 6 years ago

60 73 6 years ago

Take it with a grain of salt but I am hearing (through finance podcasts) that a lot of hedge fund managers and investment bankers are working alone from home and without physical proximity with their teams, the panic levels are setting in. I think it makes sense to me - when we are not physically banded together, we have a lost sense of safety and security.

11235813213• 6 years ago

What were their sources? My experience in finance is that physical groups of traders, advisors and analysts are prone to groupthink, a liability right now. A calm leader should still be able to enforce policy remotely.

throwaway_pdp09• 6 years ago

Let's suppose: what you say is true and they're like sheep. A guy in a group panicking has the rest of them to, kind of, validate his emotion. He might be panicking but he knows where he stands.

By himself he doesn't even have that reassurance. He doesn't have anything to measure his emotions against. Does that make sense?

starpilot• 6 years ago

Apparently HFT funds are printing money with all this volatility.

munk-a10• 6 years ago

Sigh, they aren't printing money[1], nobody in the stock market prints money - it all comes from somewhere. And in this time of crisis the last thing we need is for a huge amount of value to be siphoned off by HFT managers.

1. I know it's just a saying, but it's a bad one that implies some very wrong understandings of the world.

rmrfstar2• 6 years ago

Super confused that anyone would down-vote this. It is empirical reality [1].

[1] https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/...

dustingetz• 6 years ago

which finance podcasts do you like? i just know Macro Voices

systemvoltage2• 6 years ago

Yeah that’s where I heard it. There was a question about remote work.

davidw3• 6 years ago

I'm a lot more concerned about people's health and well-being. Once the health crisis passes, the rest will probably take care of itself.

thephyber• 6 years ago

Health includes some component of hope and perception of security. It’s not clear to me that a person living check-to-check in a rented property with no stable income can remain healthy without economic stability. For better or worse, Wall Street news pervades our perception of whether times are good or bad.

davidw3• 6 years ago

I'd focus on the immediate needs like food and rent and let stocks take care of themselves once things are better. Food and rent are a much more real and present anxiety than stock prices, even if the latter certainly does affect the 'mood'.

munk-a10• 6 years ago

I really strongly disagree.

This narrative is aggressively pushed and everyone from the president to folks on Wall Street think that market health is everything to everyone, but people with no skin in the game really don't care. A lot of Americans have no idea what a DOW even is and only know the stock market as "that place where folks gamble". Additionally those folks with mutual funds are mostly ignorant to the market as well - only those really close to end of life and suffering a financial crisis really need to evaluate how much money they may be able to draw out quickly.

vkou2• 6 years ago

And yet, if every investment (including cash, because there is a near-certainty of the government turning to inflation to solve all these problems) is crashing, then isn't it the case that nothing is crashing?

somebodythere• 6 years ago

But if financial assets are crashing in cash-terms, and cash itself is crashing in purchasing-power terms, financial assets are extra crashing.

cdiddy2• 6 years ago

Its hard to say that the USD is crashing, it seems to actually be too strong at the moment with everyone running towards it from other currencies https://www.tradingview.com/x/seCzFWI8/

qntty• 6 years ago

My investment in 100 pallets of toilet paper isn't crashing

gchokov• 6 years ago

Bad investment. For this kind of money you'd buy a japanese bidet, with buttons all in japanese, so that you are constantly entertained.

commandlinefan• 6 years ago

I wonder - it seems like a hyperinflation spiral would actually benefit people who had, say, 30-year mortgages (not that I want that to happen).

vkou2• 6 years ago

Unless we print quadrillions and quintillions of dollars, we are not going to see hyperinflation.

Nobody is actually planning on printing quadrillions and quintillions of dollars, so hyperinflation is a moot point.

munk-a10• 6 years ago

Hyperinflation benefits no one - any slight advantage you might see out of it (like a large liability) is going to be entirely washed out by the absolute chaos your economy will be in - if there is rioting in the streets you might be able to forget about your mortgage, but your house might also be looted.

munk-a10• 6 years ago

The stock market isn't money - it is a very very valuable thing in the US economy, but as long as food prices aren't being slashed to keep demand up (and various governments have had to act aggressively to keep down price exploitation) then we aren't looking at deflation - it's just the stock market, and, honestly, the market can fix itself whenever it pleases - it has an almost negligible impact on the lives of nearly everyone, only those with a lot to spare have significant skin in the game.

rmrfstar2• 6 years ago

Again, I am very surprised that people would down-vote this. The post articulates the core idea behind Arrow-Debreu securities, and taking the question seriously could yield some very interesting discussion about prices.

https://en.wikipedia.org/wiki/State_prices

spking2• 6 years ago

Lately I've been thinking about all of the "F.I.R.E." and "Boglehead" blogs and forums that have proliferated over the past 5-10 years. What percentage of those people are panicking over their plunging index funds vs. those who are ignoring the day-to-day chaos?

joshgachnang• 6 years ago

The reddit FIRE subreddit has been surprisingly calm. But I also expect the people really panicking aren't posting.

twiceaday2• 6 years ago

I bet you its calm because only the calm investors frequent that site. It's too boring for everybody else.

dmoy2• 6 years ago

Even before this thing, there were a number of fire blogs that weren't super honest about the realism of their numbers. I can only imagine that there's more who are facing a ride awakening right now.

For someone just following a boglehead index whatever, it should just be business as usual. Treat it as any other crash. That is, do nothing except maybe rebalance stock/bond ratio to match once or twice a year.

dbsights• 6 years ago

Except stocks and bonds are correlated now. So that strategy just, doesn't work any more

mulm• 6 years ago

This is anecdotal but the few documentaries I’ve seen on the early retirement people have mainly been about living really cheap, learning useful craftsmanship skills for fixing/improving homes and growing/making a lot of their foods from the basic ingredients.

I think those skills will actually be rather useful now. A lot of them seem to be living off the revenue that talking about and selling their books on F.I.R.E. rather than the actual investments.

maximente• 6 years ago

my takeaway from FIRE is that it's largely about getting your spending under control (easier to reduce spending by $50K than earn $50K post-tax) and then getting enough of a cushion to do something better for you personally or the world that might not pay as much as your old job.

so some people that did nothing but sit on the beach after FIREing may be uneasy, but a lot of people transition into other fields that just aren't necessarily as lucrative.

roenxi• 6 years ago

So some people that did nothing but sit on the beach after FIREing may be uneasy.

They'll be fine; they've been enjoying sitting on the beach. More savings doesn't protect someone from a market collapse, it just exposes them further.

A rational long term investor - assuming the stock market was going to stay like this forever - would have avoided saving any money for the last few years and would probably have been sitting on the beach enjoying themselves.

marvin• 6 years ago

Judging from the state of the /r/financialindependence subreddit, they're not panicking at all yet. Maybe if there's another 30% drop.

seibelj• 6 years ago

I thought the ultimate goal was to have enough in guaranteed fixed income (annuities, CDs, whatever) that no matter what happens you cover expenses. But maybe that's too conservative, even for those guys.

spking2• 6 years ago

I wonder how the calculus changes in 0% or negative interest rate environments.

r-s• 6 years ago

Generally the FIRE crowd stays heavy in equities and considers a 3-4% withdraw rate to be safe.

Will this slow down a lot of early retirement plans? Almost certainly. However the market is not 0, lots of these people still have substantial amounts of money saved.

rubidium• 6 years ago

I follow boglehead strategy. I’m riding this down and will ride it up. It’s an interesting ride but I’m not going to try and time anything. Still investing 70/30 s&p and bonds every 2 weeks. I’ve got lots of time left though (age 35). Time will tell if it was the right call!

robodale• 6 years ago

I'm right there with you (although I'm 46). I'm doing regular buys into S&P, a little bonds, and even a few blue chip + high dividend individual stocks that have been beat down by the crash. The money I already had in stocks and stock market funds...I'm leaving that alone. Those will come back over time, and I'll have all the extra that I bought during the crash and recovery at discounted prices.

RickJWagner• 6 years ago

Great strategy. I think Bogleheads is the single best resource for finances on the web.

aazaa• 6 years ago

No access to article, but an entire generation of money managers have grown up with the Everything Bubble starting in 2009, fueled by Fed largesse. They've never even seen a bear market, let alone a financial panic. Most have completely ignored the alarming rise in valuations and market distortions, engaging in extremely risky behavior for years on end.

Retric• 6 years ago

Yea, looking at P/E ratios based before COVID most companies only fell to a reasonable level. I’m looking at the market and thinking it’s still a little high.

A rising or falling stock market is not inherently good or bad thing. It’s only really relevant as a prediction of future trends.

dwater• 6 years ago

Yes, I heard a "market analyst" on the radio this morning talking about how the market is probably near the bottom now that COVID19 has been priced in, and it's time to start thinking about economic recovery. Meanwhile, a reasonable analysis of the medical situation in the US leads one to expect there's a lot more downside to be exposed. What will happen to the market when people who thought they had good health coverage are turned away from hospitals, not in Brooklyn but in Kansas City and Peoria? Some forecasts put us 2-4 weeks from that.

ryandrake• 6 years ago

Not just money managers, but many investors of all sorts have never witnessed a bear market.

If one thing good comes out of this crisis, it might be an end to this widely held belief that the stock market is some magical "risk-free 7% return forever" investment.

K2L8M11N2• 6 years ago

https://archive.is/Gluq8

marban• 6 years ago

Might wanna add the extreme volatility as another multipler when it comes to short-term stress bursts.

throwaway_Bees5• 6 years ago

Clearly not the brains of those certain congressmen and women that sold off before the crash...not to mention their constituents they likely gave the tip to while maintaining a different political posture publicly. Curious what kinds of bucket loads of cash they made and continue to make shorting with continued access to inside info including classified intelligence.

stuff4ben• 6 years ago

Was it classified? Did we all not see what happened in China and think it couldn't happen here? People like to knock Burr and all, but I don't think there was anything special he saw that the rest of us didn't see coming. I didn't act, but I'm not going to fault those that did. And what if he did say something to everyone? That would have caused a panic then and there, people would make a run on the banks, and the market still would be down.

throwaway_Bees5• 6 years ago

Certainly it goes without saying the head of the Senate intelligence committee has access to classified and top secret information.

He sold nearly 100% of his net worth in stocks and his public political position is inconsistent with the sale of the stock which he has at least admitted was influenced by public news reporting. It leaves one to wonder why the public news would guide his financial decisions, when as a Senator he had a different political position. Not to mention its is established he dropped the market crash tip at a $10,000/plate campaign fundraiser dinner.

ruste2• 6 years ago

Okay, really though, what information did they have access to that wasn't publicly available already? It's one thing to trade on the knowledge of a bill or piece of legislation that you're voting on, especially if you're a deciding vote, but unless I'm misunderstanding that didn't happen here. It doesn't seem like they had any information that wasn't public knowledge at that point. The whole economy was just slow to react to this. I've been paying attention to coronavirus news and honestly would have sold around the time they did had I had any exposure at the time. I get that it's easy to be mad about and makes a good headline, but I just don't see it. Maybe I'm just out of the loop though.

munk-a10• 6 years ago

These folks were still actively spinning "Oh don't you worry, golly gee wilikers this will all just blow over and, besides, on April 1st it'll stop being a thing." - while dumping their portfolio. They clearly acted immorally, they also pretty clearly broke a number of laws around senate behavior (insider trading is a thing for senators), and I think one of the best outcomes at the end of this might be forcing all elected officials to commit their assets to blind trusts.

throwaway_Bees5• 6 years ago

what information did they have access to that wasn't publicly available already?

Both classified and top secret information.

For example, changes to China's production, mobilization, expenditure (sale of stocks, debts, etc...), changes to net imports/decreases in net exports, satellite imagery, State Dept/CIA field officers analysis/reports, etc...

majormajor• 6 years ago

What would our political policy look like if the news ignored stock prices and focused on wage percentiles and employment numbers?

We'd still need to do something ASAP, but why not focus on that side of the numbers instead of this stock market fixation?

neonate• 6 years ago

https://archive.md/Gluq8

Der_Einzige• 6 years ago

Buy puts and shorts and instead of fear and panic you'll have the opposite problem: You'll watch shit burn and be "happy" about it.

OJFord2• 6 years ago

As in a memorable scene from the film The Big Short, (nsfw/expletives):

https://www.youtube.com/watch?v=7eYcWpgCb7o

This is your brain on a crashing stock market

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