Thread by @jsmian

1) In a new bull market, you can almost feel the greed tide begin.

Usually it appears a few years after the market bottom, but this time is different.

Let me explain. 🧵

2) The coronavirus pandemic has made death salient, spurring certain psychological tendencies.

Buying stocks is one result.

3) The cognizance of death, and our innate fear of it, drives much of our conscious and subconscious behavior, according to psychologist Sheldon Solomon.

4) When mortality is front and center, as it is right now, people turn to money for security.

They want to feel safe, and money is a proxy for safety.

5) For some people, “the acquisition of money is a death-denying fetish,” says Solomon.

6) Conspicuous consumption of stocks, bolstered by the frictionless appeal of zero-commission trading, has increased for this reason.

7) Daily trades across the big US retail brokerages ETrade, TD Ameritrade and Charles Schwab have more than tripled.

Retail traders now make up 20 percent of US equity trades, double last year’s total.

8) From a psychoanalytic point of view, stocks have become “phantastic objects” in the minds of investors.

Something which fulfils our deepest desires (in this case for security and protection).

9) Freud argued the reality of our minds follows two principles, the “pleasure principle” and the “reality principle.”

10) The former makes us seek continual enjoyment and gratification, while the latter appeals to reason and creates resistance to avoid any negative outcomes.

11) In rising markets, unconscious phantasy takes over from reality‐based thinking.

There is no downside to speculation as anxiety and risk are vanquished by the mantra “stocks only go up.”

A phantastic object makes one feel good and unconsciously omnipotent.

12) Not everyone in a market has to be a believer.

Indeed, the vast majority are unable to break free from the “reality principle” to assess the generalized belief that something “phantastic” is happening.

13) Those who make rational arguments and remain vigilant tend to lose their credibility.

Stars like @stoolpresidente are born.

14) The active behavior of the believing group is sufficient to move prices.

The pleasure principle creates its own momentum.

15) When enough people pursue phantastic objects in a contagious new reality, excitement can become self‐fulfilling.

16) Investors believe it is much less risky to invest than to miss out on investing.

17) “The greed itch begins when you see stocks move that you don’t own,” writes George Goodman in The Money Game.

“Then friends of yours have a stock that has doubled. Or, if you have one that has doubled, they have one that has tripled.”

18) It has been said before: there’s nothing as disturbing to one’s wellbeing and judgment as to see a friend get rich.

19) Time horizons, risk appetite and money goals change.

Eventually, it all turns into a marvelous mania that is great fun as long as you know when to leave the party.

20) I believe it is much too soon.

Young HENRY—“high earner, not rich yet”—has only just arrived at the scene.

If you enjoyed this thread, follow me @jsmian for more unique insights.

You might also like the Stray Reflections book. An antidote to the great angst of modern life.

strayreflectionsbook.com

For investment insights, check out my work and community.

Let’s get properly excited about the exchange of ideas. 👇🏼

stray-reflections.com/about