“A stock market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.” - Peter Lynch
Following this, I will publish a Substack about important earnings calls from the past two days. There is definitely a lot to talk about in regards to the business updates out there. Thesis and vision is changing for some of my favorite companies and it’s become apparent that other businesses are showing weakness and slower growth. This has many investors nervous and scared because stocks are going down. They don’t know what to do.
Let’s Talk Briefly About My Personal Experience in the U.S. Marine Corps
No, I never saw combat. I will make sure to get that out of the way. Fortunately, as I joined we began our aggressive draw down from the Iraq/Afghan war. But, I was active duty for four years. During this time, I routinely saw human psychology during periods of heightened stress. I can recall my first instance with the roles people begin to play, how different they become, when thinks become uncomfortable.
At face value, when things are going good, you often see people act confident like they know everything. You will often see people become overly optimistic and they begin to get ahead of themselves. Ideas start to transform about what a new, possible future could look like. It’s almost always different this time.
During periods of peace and stability, the best also comes out in people. Everyone tries to help each other and everyone wants to share the wealth, riches, and rewards of which stability brings. Their personalties remain cool, calm, collected, like the environment around them. But, when things begin to go wrong, I have noticed people begin to change.
Recalling my first experience in the USMC, I was in bootcamp and it was within the first few weeks. See, what people don’t know or think about is that bootcamp is less about the physical difficulties and more about the mental difficulties. They, the instructors, are trying to break you and there’s always a method to their madness. They do everything like play games, play with your mind, remove your identity, change the way you look, make you refer to yourself in the third person, force you to clean something 5x over and tell you it’s not good enough. The list can go on and on.
There was one night I recollect specifically. The entire platoon finished drill and we just got back from eating. Apparently, somebody decided to not make their bed correctly. The Drill Instructors used this as an excuse to mess with us. They forced us to clean the stair wells, clean the floors, clean the bathrooms and while doing this, they would randomly pick people off and make them do “I.T.”, aka incentive training. This is what it looks like:
Through the hall ways, you heard screams and when you looked left and right, you could see the fear in everyones eyes.
They do this on purpose, stress you out, to try to create an artificial environment of intense stress so you can handle yourself during combat. During this period, when stress and fear floods your soul that’s when you see the true character of men. A few personalities emerge during this time.
The Bully is the individual who usually groups together with other bullies to ride the trend. They essentially become their environment and they bring other people down to their level. In the markets, this is when people start losing money and they create pow-wow’s around to talk about all the different ways the market is going to crash. For example, I was on a spaces where a group of investors were digging into Cathie Wood and ARKK. They were looking for the next short idea based on her stock picks. These are bullies and they’ll kick someone when they’re down.
The Fearful are typically the people who look to run away from the stressful situation. It becomes a lot and it becomes overwhelmingly emotional. In the USMC, this is typically when Recruits would break down into tears or drop out from mental concerns. In the Markets, these are investors who cannot stand to see their portfolio go down anymore and they sell, not thinking about the business.
These two personality types are typically the ones who make the situation worse than it needs to be
The last personality type I’ve observed is The Individual in Control. This is not necessarily the individual who doesn’t feel anything but is able to separate themselves from the chaos around them. In the USMC, many of us become this through training. Their whole purpose is to reprogram Marines to not buckle under pressure, in combat, and to keep moving forward with the mission. In the Financial Markets, these are the Warren Buffets and Peter Lynch’s of the world.
Let me emphasize I am not trying to offend anyone or bucket anybody into specific categories. This is a ‘generalization’ and an observed trend of human behavior.
Let’s Talk About the Fear/Stress We’re Experiencing Today
The list is long of concerns for investors these days. Typically, when stocks go down people often seek rationalization for why markets are moving in a certain way. Here are the things the narrative is painting today:
Looming economic recession
Stagflation
Hyperinflation
Historic market crash/collapse
Russia/Ukraine war
Potential World War 3
The list can go on and on. I’ve seen many people dig up charts and say, “hey, this is why we’re crashing.” I’m beginning to lose track, it’s noisy. But….
I am not necessarily saying we should ignore inflation, a recession, or the potential for World War 3. I do think it would be smart to assume that makes have dealt with these fears for 200+ years and it’s always made it through.
In the short term, anything is possible. We could go lower, we could go higher, we could trade sideways, nobody truly knows. But, it is safe to assume one very important thing.
The most likely scenario is that what actually happens is not as bad as what everyone thinks.
It’s a lot like riding a roller coaster for the first time, the experience when you’re in the middle of it is not nearly as bad as what your mind was making it to be.
This is human psychology and it never changes.
I encourage all of those reading this to become the third personality type, the Warren Buffet’s and Peter Lynch’s. If you’re already that, I encourage you to spread optimism and the general understanding that everything will work itself out. America has done this a time or two and America always ends up better at the end. Just like Warren Buffet has said many times, “It’s never paid to bet against America”.
Stay Tuned, Stay Classy
Dillon
Market and Human Psychology