(Drivebycuriosity) - In the recent days we got a lot turbulence on the stock markets (charts below). The daily swings remind me of the term "madness of the crowds". I borrowed the term from the Scottish journalist Charles Mackay who published already in 1841 his
book "Extraordinary Popular Delusions and the Madness of Crowds" - an
early study of crowd psychology (
wikipedia).
Professional portfolio managers, including administrators of large
funds, usually act as a herd. When their bros are selling they are
selling too which amplifies the stock market movements. The recent slides animated many fund managers - and others - to take
profits,
apparently this encouraged hedge funds and other short sellers to
amplify their bets against the stock market. So the slides accelerated,
causing more selling - a typical herd behavior. Falling stock prices
also triggered stop-loss-orders. Many professionals set these sell
orders to prevent further loses.
I bet that investors like Warren Buffet did not participate. Investors
have a different mind set and a long term horizon. They don´t follow the
herd and stick with their investments to give them time to play out.
The recent turbulence reminds me also of similar hiccups in February &
March when the gamblers responded to news about interest rates &
trade war as they did in the recent days again. I assume that the new dip will soon be forgotten - like the dips
from February & March - and the gamblers will come back thanks to
the solid growth of the US economy (about 4% annually
frbatlanta ) and swiftly risings company earnings (around 20% annually
zacks).
Enjoy!
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