April 7 – April 10, 2025
The last few days of market volatility have yet again brought out the kind of rhetoric from my finance peers that was a driving force behind starting this blog. Many of the talk-tracks have little to do with the (lack of) merit behind the paradigm-changing tariffs (or their removal) coming out of the U.S. administration. They also rarely consider the potential economic impact, the spillover to consumer confidence, the growing threat of a recession, the longer-term implications on the world order and international trading relationships, or even the multitude of ways corporations may suffer. What these conversations do concern themselves with is the percentage-drop of the S&P500, Nasdaq and a limited set of large-cap names, as well as speculation about the behavior of Gold and Bitcoin. Much of the “advice” flying around is stated as fact, with no room for a discussion. And much of it boils down to a simple notion: the index / stock / cryptocurrency has experienced some amount of sell-off (the validity of which is assumed incorrect and irrelevant), therefore it is a great time to buy such asset (without doing any work to estimate an intrinsic or fair value) since stocks always recover (ignoring survivorship bias in individual equities and completely misattributing long-term performance of one asset to others, namely crypto). The result is a rosy picture of “sure to recover” equity prices, which should look inviting to all that can see. No regard is given for the fact that the markets have only recently dipped enough to erase their post-election run-up (which was in and of itself a hype-driven fluke) and still most indicators of valuation continue to blink red (things look expensive, especially in the U.S. markets). What’s the saying about rose-tinted glasses and red flags?
What makes the current barrage of (questionable) opinions worse is that we are in one of the few moments when even financiers would be excused for not knowing how to react. They may be asked by clients, families and friends at an increased rate (uncertainty tends to do that) about an increasing number of topics – what they think about the tariffs, what they are forecasting for the economy and for the markets and what they recommend people do with their wealth. But taking a page out of Jerome Powell’s book and keeping cool – “waiting and seeing” – would be a perfectly fine answer! The first step in logical decision-making is considering all the facts, and there are now meaningful missing pieces and a sizable information asymmetry between the government and the public. Unfortunately, most fill these gaps with hubris. Instead of remaining composed, most find this to be a perfect opportunity to enact their Cioran-esque tendencies to become prophets. What can we credit for such behavior? Human psychology, yes, and behavioral economics as well. But there are a few specifics worth calling out – reasons I find particularly at fault – that may weigh on financial professionals more than the rest.
Pressure to “Have the Answers”
Humans love their heuristics. If someone “works in finance,” they must know all things finance, especially the stock market (the most visible vestige of finance) – no matter that their day-job might have nothing to do with efficient asset pricing! And so, the calls roll in – from friends and families, and often from clients. Finance folks are entrusted to act as one-eyed kings in a world of blindness. This is the case under normal conditions – the frequency of calls and the pain at stake just aren’t as extreme. During market turmoil, things jump into overdrive. Faced with such pressure, stoicism flies out the window (or maybe human nature kicks in) and financiers start preaching – disregarding the pesky detail that they, too, are fallible. Partly this tendency is learned behavior – a banking analyst listening to their partner pretend to have an answer in any situation inflates their ego via osmosis. Partly there are confounding variables at play – self-confidence is often a precursor for entering the world of finance in the first place, and confidence in one area of life rarely stays siloed. And partly this is a defense mechanic against the ever-present imposter syndrome: if you don’t have the answers, do you even belong?
Noise and Pain
Much has been written about the follies of investors, including the common mental traps they fall into – overconfidence, relativity, anchoring, recency, survivorship bias, loss-aversion, sunk cost, and many more. Two themes cut across many of such fallacies and explain irrationality, especially for those working in finance – noise and pain.
Noise
Most jobs in finance are not nine to five arrangements and require strenuous, continuous attention for many hours. Focus is a key yet limited resource. Coupled with the growing volume of information we are forced to encounter each day, focusing on the things that matter is all but impossible. Keeping up with markets is time consuming. Accurately valuing assets (or entire asset classes) takes even more time – and skill. Said differently – for those not directly working on public company valuations in the context of deploying capital, there is a dismal chance of making well-informed investment decisions. Increased disclosures, availability of datasets and otherwise faster information should lead to more efficient markets – and they do, for those able to meet the rising threshold for an “informed view” (one that has absorbed the necessary information). However, retail investors (and many financiers among them) fail to meet this threshold, thus ensuring imbalanced decision-making. Being surrounded by financial stimuli as a result of working in the industry leads to a false sense of “awareness” – forgetting that noise does not equate to signals.
Pain
Avoiding discomfort comes hard-wired for most neuro-typical people – it’s instinctual (even for financiers, despite the profession they chose!). Psychological pain can be some of the most potent and behavior-influencing flavor of pain out there. Psychological pain coming from uncertainty of one’s material wealth (and therefore basal security) ranks higher still – it falls in the “safety” bucket of Maslow’s pyramid, second only to raw physiological needs. It isn’t surprising then that people try to minimize the pain they feel as a result of the stock market – humans are optimists (however illogical that may be), and they clutch that optimism dearly when their money is on the line. The structure of the stock market reinforces this belief – after all, the market generally rises and has certainly had more “up” years than crashes. But trying to live without pain can lead to poor decision-making when faced with unwanted facts. At a time like right now – when the fact-set is meaningfully changing toward the negative – having a tolerance for pain and an understanding that it is a necessary part of the market cycle would be prudent. However, hysteria is proving harder and harder to shake and panic doesn’t get as much airtime as it used to. This is doubly-true for financiers, who’s livelihoods (and not just portfolios) depend on the health of the markets (greater pain to avoid). Most financiers are also in the business of “selling” optimism – there are few fees to be made when clients hold tight to their capital, call off IPOs, don’t make trades or otherwise sit out on the sidelines. It becomes a classic case of cognitive dissonance to try and preach optimism to clients while agreeing that a correction is justified in the markets. It takes remarkably little to excite market participants and, in contrast, concerningly much to cause a sell-off.
“Bullpen” Existence
I’d like to think that I’m coning a new term, but the phenomenon is surely well-known. Financiers are far removed from factory floors, packaging plants, farms, oil rigs – from the real economy. Their well-being is tied to the performance of the wider population, but their daily experiences are locked away in literal echo chambers. Their contact with the real world is through news pundits and company C-suites (whether earnings or client calls). They see aggregated data on how the economy is doing, yet rarely engage with that economy themselves, and always as purchasers / spenders. They live insulated lives, are generally well off, surround themselves by other financiers and white-collar workers and often lack opportunities for outside perspectives. Finance jobs aren’t the first to get cut when a recession occurs. In many ways, the quality of life for financiers is a lagging indicator, which adds to their disconnect from the potentially real negative drivers of market performance. It also further inflates egos and may lead to a sort of “exceptionalism” mindset that perpetuates the other drivers of illogical thinking about investing.
The COVID Effect
An unintended consequence of the last 15 years of prosperity has been the general forgetting of what economic turmoil looks like. For many of my peers, the ’08 financial crisis was a childhood memory and, while potentially painful / vivid, recalled through the lens of a consumer (not investor). It wasn’t until the COVID market rout that many realized stocks could lose value for longer than a few days! But then the market made a very rapid V-shaped recovery and instilled the wrong lesson in an entire generation of financiers – that market corrections are quickly followed by market rallies. Combine that with a growing gambling epidemic, the gamification of trading, FOMO, shorter attention spans, greater dopamine accessibility and – well you get the picture. COVID played a disproportionate role in shaping younger people’s perception of market crashes (recency bias is certainly at hand here as well). The fact that the 2001 or 2008 market turmoil took much longer to recover is conveniently forgotten. It would do the newest generation of “investors” some good to experience real and lasting pain in the markets – not only would their philosophies get corrected, they might also get an actual buying opportunity!
Conclusion
You may think I paint a pretty dire picture of the modern finance professional, and you definitely should read the above with squinted eyes and multiple pinches of salt. But it is a real account, and I think it will lead to greater problems down the line – those same “young” investors will play an increasing role in seats responsible for being the “smart money” moving the market, and their warped views may soon spread past personal portfolios.
I was inclined to keep my view on a solution out of this post (to avoid the hypocrisy of being prophetic), but it feels wrong to point out flaws and walk away without providing an alternative. So what am I proposing? It would be unrealistic to mandate that only those capable of performing in-depth intrinsic value analyses and developing theses around individual equity names (in other words, Value Investors) should be in the market. But I do believe it should be these individuals (and institutions) that drive asset pricing. The rise of the retail “investors” (speculators) is a great move toward democratizing access to the markets, in theory. In reality, logical fallacies abound, the information asymmetry compounds (this topic is worth its own discussion) and returns underperform. Many people living in the real economy recognize their inability to “outperform” smart money, and thus adopt some form of index-based investing strategy – dollar-cost-averaging being one of the most widely accepted flavors. Financiers not actively doing the work necessary to price individual securities ought to realize that they are subject to the same cognitive fallacies as occupants of Main Street, and might be best off adopting the layman approach to their own wealth management efforts. They may widen their historical aperture and try to gain an appreciation for the meaningful market dislocations of the past (not just a COVID blip), so as to shake off that unfortunate lesson. Or, at a bare minimum, they should admit they are not experts on “all things finance,” least of all the stock market, and spare those around them their misguided advice.
Up and Out of the Fog,
Marek
Foggy Mountain Capital 
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