This is your brain on a crashing stock market(wsj.com)
wsj.com
This is your brain on a crashing stock market
https://www.wsj.com/articles/this-is-your-brain-on-a-crashing-stock-market-11584615601
76 comments
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?
The reddit FIRE subreddit has been surprisingly calm. But I also expect the people really panicking aren't posting.
I bet you its calm because only the calm investors frequent that site. It's too boring for everybody else.
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.
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.
Except stocks and bonds are correlated now. So that strategy just, doesn't work any more
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.
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.
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.
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.
> 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.
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.
Judging from the state of the /r/financialindependence subreddit, they're not panicking at all yet. Maybe if there's another 30% drop.
[deleted]
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.
I wonder how the calculus changes in 0% or negative interest rate environments.
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.
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.
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!
[deleted]
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.
Great strategy. I think Bogleheads is the single best resource for finances on the web.
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.
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.
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?
By himself he doesn't even have that reassurance. He doesn't have anything to measure his emotions against. Does that make sense?
I understand the theory, but since I haven’t found traders to make better decisions in groups, I was wondering what the source was for the increased rates of bad decisions due to remote work.
That says something really interesting about traders - that more of them essentially add no value - but I am also wondering why you think Leadership would have increased presence when folks are remote. People in companies tend to clique up, it's just how humans do, normally, in an office setting, these cliques are rather limited in terms of exclusive discussion to private messaging, lunch & coffee. Part of this is due to the fact that in an office setting cliques tend to be eroded by shared company and leadership is always quite visible (or it's doing it wrong). To contrast, when folks are remoting these cliques will instead turn into echo chambers where the members are constantly primarily exposed to one another and leadership will become less visible as it is limited to interacting with smaller segments of the team at any given time.
I don’t think leadership would have increased presence overall. It would certainly not be good, either, for leadership to be remote while everyone else worked together in-person—I’m assuming most employees are remote in these situations.
The benefit of more traders/analysts/customer-facing staff is that they can do more work. Part of the groupthink problem is that the work becomes commingled into a few big decisions in which case the value of the additional employees does temporarily become reduced, but the workload is still available the rest of the time. Again, this is in my anecdotal experience, hence the source request.
The benefit of more traders/analysts/customer-facing staff is that they can do more work. Part of the groupthink problem is that the work becomes commingled into a few big decisions in which case the value of the additional employees does temporarily become reduced, but the workload is still available the rest of the time. Again, this is in my anecdotal experience, hence the source request.
Apparently HFT funds are printing money with all this volatility.
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.
1. I know it's just a saying, but it's a bad one that implies some very wrong understandings of the world.
Super confused that anyone would down-vote this. It is empirical reality [1].
[1] https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/...
[1] https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/...
which finance podcasts do you like? i just know Macro Voices
Yeah that’s where I heard it. There was a question about remote work.
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.
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.
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'.
Except if you’re unemployed, you might have to sell stock to focus on food and rent.
I'd be concerned for your financial stability if you need to liquidate assets as soon as you might miss out on two weeks' pay.
There are a lot of people that will really struggle in the coming weeks or months, but the venn diagram of those folks and people with a significant presence in the stock market is really quite small.
There are a lot of people that will really struggle in the coming weeks or months, but the venn diagram of those folks and people with a significant presence in the stock market is really quite small.
Not sure where you're getting 2 weeks pay from. Many in the professional class will lose their jobs in a contracting market (there will be losers), and finding a new job will take much more than 2 weeks. In the mean time, there's still rent/mortgage to pay amongst other expenses. Not everyone keeps a lot of cash liquid.
There's also a difference between selling some stocks and liquidating your portfolio. It's not all one or the other.
There's also a difference between selling some stocks and liquidating your portfolio. It's not all one or the other.
Uh, most of those people don't have stocks in the first place.
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.
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.
You are underestimating the massive amounts of layoffs that have been happening in the past week and a half. That's the market dying. It's not just stocks.
If valuation goes down, that usually means less revenue coming in, which means less money to pay employees, which leads to them getting fired, which leads to less spending, which leads to less revenue going in...
If valuation goes down, that usually means less revenue coming in, which means less money to pay employees, which leads to them getting fired, which leads to less spending, which leads to less revenue going in...
Oh, the layoffs are terrible and a lot of people are in a really bad place - please don't read my statement above as implying the everything is honky dory for everyone. It's just, these two things aren't connected - the market can tail spin or be in a huge surge and things don't really change for most folks on the ground - a few more or a few less yachts are built.
Valuation going down doesn't cause less revenue to come in - less revenue coming in will cause valuation is going down, but a lot of other things (including paniced sell offs, speculation, and everyone and their brother learning what "shorting" is) cause the valuation to go down as well.
The economy is in trouble, but the stock market is only an indicator of the economy, not a vital component of it - so America cares that layoffs are happening, America doesn't give a hoot that the DOW is bearish or bullish.
Valuation going down doesn't cause less revenue to come in - less revenue coming in will cause valuation is going down, but a lot of other things (including paniced sell offs, speculation, and everyone and their brother learning what "shorting" is) cause the valuation to go down as well.
The economy is in trouble, but the stock market is only an indicator of the economy, not a vital component of it - so America cares that layoffs are happening, America doesn't give a hoot that the DOW is bearish or bullish.
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?
But if financial assets are crashing in cash-terms, and cash itself is crashing in purchasing-power terms, financial assets are extra crashing.
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/
It’s strength relative to other currencies is one thing, but if everyone is QEing at the same time, the dollar could still be weakening in absolute terms.
My investment in 100 pallets of toilet paper isn't crashing
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).
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.
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.
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
https://en.wikipedia.org/wiki/State_prices
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.
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.
A rising or falling stock market is not inherently good or bad thing. It’s only really relevant as a prediction of future trends.
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.
> near the bottom now that COVID19 has been priced in, [...] Meanwhile, a reasonable analysis of the medical situation in the US leads one to expect there's a lot more downside to be exposed.
That's exactly what they mean that's been 'priced in'.
I don't happen to agree, but you can't say 'the situation hasn't been priced in, because the situation is going to get worse', because the whole point of 'pricing in' is that it's taking into account whatever thing we're pricing in, wherever we're going.
That's exactly what they mean that's been 'priced in'.
I don't happen to agree, but you can't say 'the situation hasn't been priced in, because the situation is going to get worse', because the whole point of 'pricing in' is that it's taking into account whatever thing we're pricing in, wherever we're going.
It's my estimation that farming and food manufacturing sectors will be able to ride out this issue without feeling much hurt, but I think it's too early to definitively say. Right now tech stocks aren't doing terrible but if service companies start actually shuttering their doors then we're in for a lot more market dropping.
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.
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.
Might wanna add the extreme volatility as another multipler when it comes to short-term stress bursts.
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.
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.
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.
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.
Can we watch his buying activity to predict the market bottom?
No, but you could purchase a $10,000 plate at his next fundraiser and he may just tell you, like he told the donors at the last fundraiser before the crash.
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.
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.
>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...
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...
Fair point if true, but without a source it sounds like speculation
I'd still say that by the end of january, there was absolutely plenty of reason to sell off stock. A reasonable person absolutely would have made that decision based on information that was already public.
I'd still say that by the end of january, there was absolutely plenty of reason to sell off stock. A reasonable person absolutely would have made that decision based on information that was already public.
>A reasonable person absolutely would have made that decision based on information that was already public.
The stock was sold immediately after a coronavirus briefing, not just some stock, his entire net worth.
Maybe it is reasonable to have sold your entire net worth based solely on the available public news, but then why not well before or well after the briefing and instead right after the briefing? Why tip of your wealth constituents at a $10,000/plate fundraiser while simultaneously maintaining a different political position publicly?
The stock was sold immediately after a coronavirus briefing, not just some stock, his entire net worth.
Maybe it is reasonable to have sold your entire net worth based solely on the available public news, but then why not well before or well after the briefing and instead right after the briefing? Why tip of your wealth constituents at a $10,000/plate fundraiser while simultaneously maintaining a different political position publicly?
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?
We'd still need to do something ASAP, but why not focus on that side of the numbers instead of this stock market fixation?
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.
As in a memorable scene from the film The Big Short, (nsfw/expletives):
https://www.youtube.com/watch?v=7eYcWpgCb7o
https://www.youtube.com/watch?v=7eYcWpgCb7o