Noah Didn’t Yield To FOMO, Neither Should You

Noah didn’t yield to FOMO, neither should you. 

In the beginning, God created the heavens and the earth” reads the first sentence of the bible. Later in the book of Genesis, God created cycles.

“Then Joseph said to Pharaoh, “Both of these dreams have the same meaning. God is telling you what will happen soon. The seven good cows and the seven good heads of grain are seven good years. And the seven thin, sick-looking cows and the seven thin heads of grain mean that there will be seven years of hunger in this area. These seven bad years will come after the seven good years. Genesis 41:25-36

Eons later, famed mathematician Benoit Mandelbrot wrote on the similarity between naturally occurring cycles and market cycles. He used the terms Joseph Effect and Noah Effect to define the good and bad years, respectively.

Despite the sharp decline last year, equity markets are back to record highs, and the Joseph Effect is running strong. But, while investors are enthusiastic, the odds are growing that the Noah Effect may come sooner than most investors fathom. The math is clear that returns over the next ten years will pale in comparison to the last.

In this article, we diverge from the math and appreciate the behavioral traits that allow markets to reach extremes. These qualitative factors will help you make sense of today’s market and better prepare for tomorrow.

Smile, You’re On Candid Camera

From 1960 to 1975, Allen Funt hosted a TV series called Candid Camera. The show secretly filmed people doing peculiar things. In addition to being hilarious, the show highlights how inane behavioral traits drive our actions.

For example, the episode Elevator Psychology exhibits how humans tend to follow the lead of others. In market parlance, this is coined FOMO, or the fear of missing out.

fomo, Noah Didn’t Yield To FOMO, Neither Should You

In the first scene of the linked video, a man enters an elevator, followed by Candid Camera actors. The actors entering the elevator all face the rear of the car. Upon seeing this, the puzzled man slowly turns around and faces the rear of the elevator. In the second skit, another man not only follows the actors facing backward but then proceeds to rotate back and forth as the actors do. As the scene goes on, he takes off his hat and puts it back on, following the lead of the actors.

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