Some sporadic standalone personal thoughts on markets and social dynamics noted amid the global turmoil caused by the Coronavirus.
As the Corona chaos is unfolding, I jotted down some thoughts from observing the markets and social dynamics over the past few weeks. This is a very rough and unstructured blog post which can be considered as me thinking out loud.
- The world is far more opaque than we like to think it is.
- The “worst-case scenario” is not known to you. When you say the “worst-case scenario”, it is simply the worst possibilities you can currently imagine.
- Different people behave in different ways. Everybody’s information is incomplete which is one factor fuelling this.
- Times of catastrophic crisis sow the seeds for times of great growth.
- You can’t say “X, therefore Y”. A real crisis or shock has to be unforeseen.
- The time to act is the time when everyone believes it is silly to act.
- Those events that have small odds of occurring but hold the potential for disastrous consequences deserve the utmost attention and seriousness.
- Humans are a social animal. As rational as you may believe you are, fear is contagious.
- Those who can get downside exposure at the right time and/or have significant cash on the sidelines make a killing in a market downturn. As the majority of the economy is overleveraged, they will be seeking to sell assets for pennies on the dollar.
- Low-interest rates and cheap credit spur a high-velocity, low-quality global economy. In these circumstances, a high percentage of businesses operate just above the margin and cannot sustain themselves when credit is not easily accessible. AKA Zombie Companies.
- Many initially fear for their personal luxuries. Can they maintain their standard of living? Will their job be okay? As scarcity increases, empathy for your neighbour declines.
- Humans are simply not equipped to understand the complexity of the environment we inhabit. We like to act as if we have all worldly matters within our reigns but this is far from reality.
- Lack of clarity causes hysteria.
- The power of a rumour grows exponentially for every additional person who is aware of it. Similar to Metcalfe’s Law.
- Our minds don’t easily accept present uncertainty. We are especially susceptible to either forecasting thoroughly rosy conditions or dire days arriving upon us. Such susceptibility must certainly have a strong biological rooting. A hunter-gatherer who forecasts a lack of food in the future has a strong drive to venture.
- Make sure your downside risk is covered. Then, and only then, expose yourself to upside potential.
Quotes from Others
Here are some quotes from others which I feel hold some wisdom pertaining to our present circumstances.
“Everything around you that you call life was made up by people that were no smarter than you.”Steve Jobs
“Regular men are a certain varying number of meals away from lying, stealing, and killing.”Nassim Taleb, The Bed of Procrustes