Posts filed under “Psychology”
Our friends at Stock Trader’s Almanac sent along this table, noting how past terror events have generated different market reactions.
STA: "When the market was in decline or weak, the terror attack merely seemed to accelerate the process. But with the Bali bombing, after the 2002 bottom, the market shrugged off the horrific event and never lost ground."
How Crises Impact Markets (Based on Dow Industrials)
|Date||Crisis||1-Day Change||1-Month Change||Subseq. Low Change||Days to Bottom||Days to Recover||1-Year Change|
|12/7/41||Pearl Harbor Attack||-3.5%||-3.0%||-8.8%||16||335||12.0%|
|6/25/50||N Korea Invades S Korea||-4.7%||-7.8%||-12.0%||18||81||28.8%|
|10/15/62||Cuban Missile Crisis||-0.1%||6.7%||-5.4%||8||16||33.8%|
|11/22/63||Pres Kennedy Shot||-2.9%||3.5%||-2.9%||1||4||25.0%|
|10/19/73||Arab Oil Embargo||-0.3%||-10.5%||-18.2%||47||4||-25.5%|
|8/2/90||Iraq Invades Kuwait||-1.2%||-9.9%||-18.4%||70||193||26.2%|
|9/11/01||Terrorists Attack USA||-7.1%||-3.8%||-14.3%||10||59||-3.0%|
|10/12/02||Terrorists Attack Bali||0.3%||6.5%||N/A||N/A||1||32.9%|
|3/11/04||Terrorists Attack Madrid||-1.6%||2.1%||-1.9%||4||6||6.4%|
|7/7/05||Terrorists Attack London||0.3%||?||?||?||?||?|
Thanks for the chart, Jeff.
From R. Douglas Van Eaton, CFA, professor of finance in the
College of Business Administration at the University of North Texas, discusses common investor errors:
Fear of regret/pain of regret
Myopic risk aversion
Van Eaton notes" A better understanding of the psychology of investor mistakes can
reduce their effects on investment decisions. Here is a list of the
most common psychological effects, and how you can reduce their impact
and incorporate them into your own investment decisions."
The full piece is below.
The Psychology Behind Common Investor Mistakes
R. Douglas Van Eaton