What's Really Happening in the Markets
In investing, the “first and best victory is to conquer self” (Plato). If you conquer self, it gives you an understanding of human nature which is essential to navigating the markets.
A stock is a little piece of a business and very often, market participants tend to forget this. Similarly, the lowest level definition of the stock market is a group of human beings taking decisions and this too is largely ignored by observers.
Stocks moving up and down are ultimately the result of humans expressing their inner state. It thus follows that we often find the most powerful insights by adeptly navigating the emotional dimension, seeing with clarity when the inner state of market participants is removed from reality.
The market today feels quite pessimistic, although there are some solid reasons behind its moodiness. We have a rapidly growing inflation, together with a terrible war waging in Ukraine. Both are serious threats to our civilization. None, however, are rational reasons to sell a long list of growth stocks at the current prices.
Companies are humanity´s default way of / vehicle for generating wealth. Companies innovate and bring products and services to market that make human kind better off. Neither inflation nor wars fundamentally alter this core principle and what we are seeing now is the market “throwing the baby out with the bathwater”.
I see a fundamental reason for the above, which is rooted in humanity´s subconsciousness. For the last 3 years, we have lived through quite a traumatizing experience and we have not grieved it out.
When a human does not naturally grieve a loss of some kind, the pain builds up in the subconscious and one day, the damn breaks. It is also the case that when you are dealing with a tough situation, you somehow power on and when it abides, you somewhat break down (think exam season in your school days, for instance).
Humanity is tired and is unknowingly looking for a way to grieve. The war in Ukraine has broken the damn and as it refers to the market, the need for grieve is strongest where synthetic optimism has been most abundant. You guessed it - growth stocks.
A lot of these companies will change the world over the next few decades and will deliver a great deal of value to shareholders. It just doesn´t seem like it now, because we are looking for any excuse we can to run our default emotional software. The inflation and the war should suffice for H1 2022.
When we are finished doing so, the markets will be on their way back up.
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