World-beating investments are made with sweaty palms, gritted teeth, and through a serious twinge of crippling nausea.
Looking at historical charts is both informative and misleading. Static in their stately, frozen-in-time way, past market crash chaos is presented in a frozen snapshot, absent the blood-in-the-streets, fight-or-flight mania that accompanied it.
Whether or not you are conscious of it, your brain is sizing up these charts and telling you one thing: “I could have seen it coming. It’s pretty obvious in retrospect. So this time, I’ll just wait for the bottom, then buy.”
A siren song. An utter fiction. A simple, rote impossibility.
Exact market bottoms are forged in a maelstrom of a thousand different entropic factors. For example, on the one hand, emotional investor fear-selling reaches a wild crescendo, while on the other, the unblinking and emotionless algorithms that trigger margin liquidation eviscerate over-leveraged portfolios at the lows.
We forget, so fast. At the time, our brains were screaming at us: “Whatever you do, do not buy! Everything has plummeted for days and will continue to plummet for days! Or weeks! OR MAYBE FOREVER!”
It’s not willful, it’s chemical. What’s one of the human behaviors that displays the most similar greed/fear chemical response in the brain (you know, the ones that push you to buy high and sell low) that investing does? The one that makes you heedless of risk, makes you throw good money after bad, and chase, chase, chase those already-in-the-past outsized risk-asset returns?
Cocaine use.[1]
I don’t need to convince you not to invest while you’re high. But it can be more difficult (and here’s where ‘willful’ comes in) to fully appreciate how it is in your best interest to do exactly the opposite of whatever your...