The Market Has No Memory?
Obviously the market has no memory in the literal sense, it’s not a sentient being after all, but don’t we all use anthropomorphism when discussing the markets? The way the collective “us” that is “the market” processes past market histories, the stories and emotions we assign to them, the way we like to look at charts, all give the market some semblance of a memory.
After all, what is price action but the sum of expectations, reactions, traumas, and dreams—layered on by people who’ve been here before? And by people who think they’ve been here before.
The ghosts of 2008, the Covid crash, even the recent rate hikes still whisper through risk premiums and investor skittishness. They don't show up in earnings reports. But they show up in how fast we sell, how cautiously we re-enter, and how reflexively we chase when FOMO flips back on.
So when the S&P swings 1,000 points in six weeks, don’t just look at inflation data or jobless claims. Look at the psychology of price. Are we fighting the last war? Repeating the last mistake? Or just trying to forget?
Just over a month ago, the S&P index dipped below 5,000—headlines screamed correction, and everyone started whispering about stagflation. And yet here we are: ~5,900 and year-to-date losses erased. Fear forgotten. Again.
But not really forgotten. Because the market does remember. Not like a robot. Like a person. Because that’s what it is—a crowd with a collective memory, triggered by chart patterns, headlines, and the X accounts that want to remind you about the GFC, tech bubble, or depression.
It remembers pain. It remembers euphoria. And right now, it’s choosing euphoria again—at least until the next “unforeseen” event we’ll all pretend to be shocked by.
Because the market doesn’t suffer amnesia. It suffers denial. As Howard Marks’ says: "the first cause [of market euphoria] is extreme brevity of the financial memory.”
Today’s Lesson: The Market Has a Subconscious (So Do You)
“Without our knowing it, we see reality through glasses colored by the subconscious memory of previous experiences.” Not the words you’d expect to see in a finance blog, but while the finance crowd’s subconscious doesn’t get airtime on CNBC it runs the show when the market swings a few percentage points. The problem is the collective subconscious probably doesn’t match your true goals and to make matters worse our own true goals can be buried within our own subconscious.
The market’s subconscious shows up in sentiment, in panic, in denial and probably in every algorithm that is patterned off trading behavior. The challenge is while the market memory is “real” it doesn’t fit into any spreadsheet, but we all see the subconscious of the collective leak out into the open when we get jarring moves.
If we want to invest well, dare I say sanely, we need a better relationship with our subconscious. The part of us that flinches as losses, panics at headlines, projects every fear into the next chart and also paradoxically gets lost in the euphoria when things are going well.
The monks say that prayer trains the inner life so they can find deeper truth. Wall Street might say it is “process” that allows them to avoid falling prey to the delusions of the masses. But both are about cultivating awareness, discipline and humility. Finding space between reaction and response.
You don’t beat the market by outsmarting it. You beat it by not becoming a puppet of your subconscious when it matters most.
So maybe the next time volatility spikes, don’t just check your exposure.
Check your interior life…and review these past posts, here and here.
And if you don’t think all the investing greats would agree with this lesson then you're not paying attention.
“Some people are not emotionally or psychologically fit to own stocks" - Buffett
“The ability to keep raw irrational emotions under control" - Munger
XTOD’s:
XTOD: Trade war on, yields up. Trade war off, yields up. Inflation beat, yields up. Dollar down, yields up. Dollar up, yields up. Risk on, yields up. Risk off, yields up.
That is why this is not a dip, this is a triple infection of the secular order, cyclical expansion, and US bubble all at once, from the highest valuations in a century, already mid-recession with no intent to ease monetarily, delinquencies at or near highs, credit turning down, rapid earnings downgrades and…Pro-cyclical fiscal austerity, if not by choice then by imposition.
XTOD: Absolutely disgusting. For every $1 you deposit in your IRA, Basic Capital will match $4 as a loan. But interest on that loan is 6.26% and the account costs $300/year to maintain. Plus, they charge 0.50%/year on the investments and take 5% of your gains. GTFOH.
XTOD: In 1971, the US ran out of money and defaulted on its debts. Now, they didn’t say it that way. But by moving away from the gold standard, money as we understood it ended.
I expected the stock market to plunge, but it went on to rise nearly 25%. That surprised me. But when I looked into it, I discovered the exact same thing happened in 1933 and it had the exact same effect. Here’s why.
XTOD: Most people endure decades of work they hate, hoping one day they’ll be free. Naval calls this “the deferred life plan.” And he believes it’s a lie. “Looking forward to vacations takes the joy out of every day.” For Naval, life isn’t something to delay. It’s something to design.
XTOD: I routinely write “No hurry, no pause” at the top of my notebooks as a daily reminder.
You can get 95% of the results you want by calmly putting one foot in front of the other.
One former Navy SEAL friend once texted me a principle used in their training: “Slow is smooth. Smooth is fast.” Perhaps I’m just getting old, but my definition of luxury has changed over time. Now, it’s not about owning a lot of stuff. Luxury, to me, is feeling unrushed.
No hurry, no pause.
https://x.com/TotemMacro/status/1922334120455127417
https://x.com/dougboneparth/status/1922352672088248344
https://x.com/RayDalio/status/1922315906530869381
https://x.com/jaynitx/status/1922253635024535618
https://x.com/tferriss/status/1922361086248157554
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