Strange times make people do strange things. Almost overnight, some have become day traders, buying distressed airline and cruise stocks. Now, companies that have recently filed for bankruptcy are experiencing massive price swings as people buy their stock.
Found on A Wealth of Common Sense, an article by Ben Carlson further details the craziness found in the markets recently. Along with wild daily price swings, he says, “It’s easy to ‘tsk, tsk’ these speculative moves in the market but this type of behavior is nothing new.”
“This year is unlike anything we’ve ever seen before in terms of market and economic dynamics but there is plenty of investor behavior that has been around since the dawn of markets.”
Some Things in the Market Never Change
Carlson lists seven things that will never change about the markets.
- Lottery ticket stocks will always find a buyer.
Because your brain feels better when it’s expecting to make money than when it’s actually making money, investors and gamblers are rarely satisfied with a single win.
- No one is right all the time.
No one is going to nail every top and bottom, especially in a market where things happen at ludicrous speed.
- The “dumb” retail money will occasionally beat the “smart” professional money. Some legendary investors (Druckenmiller, Tepper and Buffett) say their positions have been too defensive during this rally. This doesn’t make them idiots, nor does it make other investors geniuses. That’s just how it is sometimes.
- Cycles tend to feel like they will never end.
Remember, markets are always and forever cyclical. No trend lasts forever.
- Hindsight capital remains undefeated.
It’s easy to look back at what’s happened this year, or in any year, and create perfectly logical reasons for the market’s behavior. But there are no counterfactuals. This year, markets have been equal parts resilient and fragile.
- Certain investors will always worry more about being right than making money.
Markets would be easier if hard work meant better results. If intelligence guaranteed the top spots. If market fundamentals prevailed and if the markets actually made sense. But simplicity often beats complexity and temperament matters more than intelligence. And sometimes markets don’t make sense.
- People with no skill or knowledge about the markets can still make money.
The market doesn’t discriminate between professional and amateur. There’s no IQ test required to buy a share of stock. Lately, the tiny retail traders have been the biggest beneficiaries in the market.
Avoid the Craziness
Comforting or worrisome. With the recent craziness in the markets, knowing that these things will never change in the market may be a comfort or a worry to you. If the legendary investors admit they aren’t getting it right, do you have a chance?
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