The following are the top 5 reasons I believe that the market dropped today:
1. People are scared! Today’s sell off in the stock market was not just mom and pop investor scared about losing their retirement savings, there were huge institutional trades today that seem to be driven by fear.
2. People are confused! The world financial markets are so much more complex than the news anchors on CNBC make it appear to be. Generally, when I’m having trouble understanding something, I run from it. I believe folks all over the world did the same thing today. Many folks are realizing that the stock market is not a game to play.
3. People are irrational! There are sectors of our ecomony that are having huge struggles. In the middle of the struggles, there are companies that have made good decisions, and are doing extremely well because of those good choices. Unfortunatly, on days like this, people don’t care about fundamental business metrics, they just want to get dollars away from the stock market.
4. People are fed up! If you are the average American, you get 99% of your market information from the media. This makes it difficult to navigate past the personal opinions and biases of those bringing you the news. With a presidential election on the horizon, the media seems to have gone extremely negative on the US economy. I believe that lots of hard working folks are simply tired of the daily dose of bad news there have having to digest. The natural way to combat that is to get your investments into cash, and turn off the tube.
5. People are funny! We really are funny. We are all experts in our own right. “We sure would do things differently if we were in charge.” “I got out before the fall.” “I wouldn’t have made that mistake.” Etc. I think that many people feel like if they get out now, their personal story is stronger. We humans HATE to be wrong!