The market is run by people, but oddly enough, unlike our obsession with the political campaigns of today, or throughout time, the markets have been incredibly resilient to politics, and political events. A rising market cannot be broken very easily through individual events in the world. What affects us, doesn’t often affect the markets in the same way.
Now that doesn’t mean we won’t see shake-outs, #Brexit drops, or other type of sharp moves in response to news. But, history is interesting, and the markets, even more interesting, because the country’s psychology, isn’t always the markets psychology.
JFK was shot and killed in November of 1963 in Dallas, Texas. Everyone knows that. What people don’t know or don’t often focus on is that we were in a rising market at that time. Those not focused on the psychology of the market, but, instead, thinking the mass psychology of politics would outweigh any market, predicted doom and gloom for the burgeoning bull market. And, they all seemed correct in their prognostications initially. The market, which had been shut down after JFK’s assassination, did drop steeply in the proceeding days. However, and this is a big however, it recovered just as fast in the coming weeks, and finished at a high for the year.
The reason people have such a difficult time with the markets is because we often times approach it with our own psychology and beliefs, rather than understanding that the mass psychology of the market reacts and responds to things a lot different. From 9/11 to the Crash of 2008 to as far back as the Great Depression, markets have acted differently than the political realms and events that are going around it.
So, you might be thinking to yourself: well, that’s all well and good, markets act differently, I get it, but so what, what does that mean, and what’s that have to do with anything that I’m trying to do today?
Understanding the psychology of the market is key to you not getting caught up in your own psychology. It is often easy for us to abandon our trading plans and strategies, when we believe that the market will act differently because of one event or another.
The truth of the matter is that the market, though not always rational, runs on its own psychological rules. The moment you start trying to apply your psychology to the market and figure out what you expect people should do, would do, or will do, is the moment that you begin to suffer in the market. You’ll experience a cognitive dissonance with the markets. And the market has far more brain power and will beat you into submission in the end.
So, how do you respond to markets during crazy times, political upheavals, and horrendous events? You remove yourself from it emotionally. Your strategies, whatever they are, need to have the emotional swings of the market prepared and a solution to work within it. Or to just get out of the market. You continue to utilize your strategy in the market, and keep yourself from trying to catch possible reactions, and instead, follow the market’s actual growth and failings.
You can create a great deal of wealth in the market, if you don’t get caught up in your psychology, or the psychology of the market, and try to play the game of, “I’m going to figure out how the market’s going to react to any individual piece of news, event, or political going ons”. The fact is that the market runs on its own barometer, and the only way to beat it, is to understand it doesn’t care about politics, terrorism, or anything else. When the market decides what it’s going to do. It will almost always continue on that path until it changes its mind.
Clarence Oliver
