Up Slowly Like a Hot Air Balloon, Down Fast Like A Rock

If you have ever had one of those days when you step out of bed feeling a little under the weather, only to finish your day really sick, you know how fast things can change.  It is a strange phenomenon, you have been feeling great for weeks, and then bam, your sick!

Frequently capital markets have very similar characteristics, as we slowly walk up the stairs, only to take the elevator down quickly, especially in certain higher risk areas.

Why does this happen?

No one knows for sure, but here are a few ideas:

  • Time passes very slowly when your sick and often very quickly when things are going well, thereby magnifying the slow times, and minimizing the good.
  • Even with all the fancy electronics, flashing numbers, graphs, and charts, there are human decision behind the financial transactions, and we tend to have heard instincts.
  • Capital markets are not efficient, (thank goodness for us as investors) and tend to get too excited during good times, overshooting on the long climb up, only to get too depressed on the downside, again overshooting on the fast fall down.
  • We see things extremely fast or even live today, for the better or worse. Just as most of us have seen military conflicts almost live, we now have easy access to instant data, which is great for our knowledge, but can be scary as well.
  • Everyone leaves the party much faster than they arrived and the traffic jam happens much faster than the flow, basic logistics and fear add to the extremes.

Just as I can tame my 3-year-old for a few minutes, he is surely to be bouncing off the walls sooner or later; Capital markets have always had risk, and will continue to do so, even if they have been quiet for a while.

We are not calling for a doom and gloom situation, or any terrible event, we only want to remind ourselves, and our readers, often times certain areas of the Capital markets can go up like a balloon only to fall like a rock. Staying diversified, disciplined, and aware, should help us all ward off the negative headlines or thoughts.

Have a Great Day and Super Weekend!

JK

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