I have a friend that is always telling me that I give people too much credit and my expectations for yesterday were exactly that. The previous night I had used Gas Buddy, Zillow, and KBB to predict what the CPI would show, and I got shockingly accurate results. Gas was up but mostly due to the switch to summer fuel and the rest of the economy was cooling.
I should have known better. There is a lot of nuance in that above statement, and people don’t do nuance. I have a feeling getting into a discussion about the general inflation number vs the core inflation number would be a lot like discussing batting average vs on base percentage in 2006.
So, when the big scary headlines hit and the real news was buried in the article the reaction was to the headline. People don’t read past headlines to begin with and fear is the main product of the new media. They don’t report houses that don’t burn as the saying goes or if it bleeds it leads. Therefore the store for yesterday became the economy is on fire and the stock market is bleeding.
The story isn’t the truth. The headline gives the story, the rest of the article hides the truth, and a truly wise man would know to read both. Therein lies the problem. I am not a truly wise man, and therefore I read the article, saw the news I wanted, and had the equal and opposite reaction to the headline readers.
Both extremes can be just as dangerous. When engaging with something like the stock market you aren’t rating businesses. You are rating human emotion and humans are neither rational nor irrational, they are emotional. I know this from being in business. People buy with emotions and justify the cost later. That is how people operate.
Another important thing in dealing with markets is that money saved is money spent for most people. That is the psychological factor of savings. It is also why any book on savings suggest taking money off the top. People spend the money in their pocket. It is human nature. Most people, consciously or unconsciously, view money invested as already gone. This is also why habits are better than knowledge when it comes to saving and investing.
People don’t change. Individuals might, technology certainly does, and time marches through them all, but in the end a collection of people will act the same when faced with the same circumstances whether it is in the time of Caesar or in the world of the future. That’s a truth I need to stop forgetting.
David Huzzard Writes 