Why The Stock Market Dropped: My Two Cents

I hate writing about stocks. I used to outsource my happiness to the moves of the stock market.

Day by day, minute by minute. I was miserable.

But I’m seeing too much BS in the news so I just wanted to make some comments and point out things not typically in the news.

This is not a political article. Or an economics article. Or an article even about stocks.

The stock market (the Dow Jones index) fell 1400 points in the past few days and I started to see the usual “Dr. Doom” style pundits begin forecasting doom and gloom.

They are wrong like they are always wrong.

The points I’m about to make aren’t even about the past two days.

But they are about the things you need to look at when making major decisions with your money. And not rush into irrational behavior.

It’s important to understand this one cognitive bias: Herd Behavior.

When a movie is over, everyone shuffles to the aisle and rationally waits to leave through the exit.

But if someone yells “Fire!” then the cognitive bias known as “herd behavior” takes over. Everyone gets irrational. The exits gets clogged with a mass of people. And then people die.

To survive in the investing world you have to avoid herd behavior. Don’t get burned by the fire. Or even the rumor of “fire!”

The pundits on the news are just trying to make money by yelling “fire”.

If the below is a little technical, ask in the comments and I’ll try to answer. But it doesn’t matter. Just note that things are always a little more nuanced than what is portrayed.

The key to everything in life is to stay in the game for the long term.


** Why did the market drop?

Because people are afraid the Federal Reserve is going to keep raising interest rates.

** Why would this be bad for the stock market?

Because when interest rates are TOO HIGH there is more incentive for people to keep money in the bank than for people to invest in the stock market.

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Gary Anderson 1 year ago Contributor's comment

Trump's trade war is dangerous. It is more about what America will miss out on than what it will lose or gain short term.