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How? Michel Pireu     | Streetdogs Thursday, December 27, 2018
From Paul Solman at PBS:

So here’s a question I’ve been pondering: How are today’s stock investors going to react if the market continues to plummet?

Some of the younger investors have never known a bear market and may be unprepared for one, financially and emotionally. And even the ones who can remember may be more focused on the idea of what goes down must go up and may be similarly shaken.

Moreover, some 10,000 Baby Boomers are hitting retirement age every day. While 25 percent of them continue to work past the age of 65, the other three-quarters do not. They must be relying on Social Security and/or their own private pensions, plus their savings.

We have to remind ourselves too, that most market trading is done by computer programs (algorithms) these days. So the bigger question may be: Is there a tendency in those programs to do as we do? That is, do the algorithms tend to move with the crowd, buying when stocks are going up, selling when they dive?

“There is simply no telling how far stocks can fall in a short period,” wrote Buffett in in his 2017 letter to Berkshire shareholders. Reminding them that, “The light can at any time go from green to red without pausing at yellow.”

“Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market,” warned Buffett, “your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

Those are powerful forces, algorithms and unsettled minds, feeding on themselves. And for those of us with a shorter time horizon than the median American — age 38 at the moment — quitting stocks may seem the prudent thing to do.

If enough of us do, it will be a self-fulfilling prophecy.
 
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