This is somewhat of a crosspost, so I'll credit the original post that inspired me to add this here.
This is one of the really really important things to understand about markets, especially for the folk who still believe that markets are efficient and that price changes occur on a fairly random level (IE, random walk fans).
After we saw a 26% drop in a record amount of time, a lot of people are left wondering "wtf?". At the same time, everyone in the real world who isn't tuned into markets to the same degree as people here are wondering wtf is going on with the run on toilet paper all around the country.
I find it funny, because the run on toilet paper is a very good metaphor for market behavior, especially with respect to the psychological aspect of things.
- Most people know that toilet paper is not essential to combat the coronavirus.
- Despite this, photos are getting posted and spread of toilet paper being gone.
- Due to the perceived shortage in toilet paper, everyone and their mom is trying to front run their neighbors hoarding toilet paper, which then just increases shortages.
- Supply runs out, and this then further increases shortages, which then increases demand to hoard the asset.
So next time you're wondering why bubbles occur, how they come into play, or how big selloffs occur, think to the run on toilet paper we had in 2020. If you can get a run on fucking toilet paper, it's not that hard for everyone to want to front-run selling or buying in asset markets. Conveniently, this is also why momentum is a positive factor across almost all asset classes.
Submitted March 13, 2020 at 10:17PM by cbus20122 https://ift.tt/2U8x7ni
