Memory is a faculty that forgets, especially when it suits us

Memory is a faculty that forgets, especially when it suits us

Two hunters rent a plane to take them to a wild and remote place to hunt moose. When they arrive at their destination, the pilot warns them that they can only bring back one moose each because any additional weight would overload the engine, compromising the return flight. Two days later, the plane returned for the hunters and each of them killed two moose. “Too much weight,” says the pilot. “Bah, you told us the same thing last year; we gave you $1,000 each as a bonus and you brought us back,” one of the hunters said. The pilot accepts the same offer. Of course, shortly after takeoff, the engine misfires and the pilot is forced to crash land. Once on the ground, the hunters, stunned but safe and sound, stagger out of the plane. “Where are we?”, one of them asks. “I don’t know,” replies the other, “but it looks a lot like where we crashed last year.»

I found this joke particularly tasty, probably because it applies completely to what I have been observing for a few months on the stock markets. I find it hard to understand, but it seems to me that, like the two hunters in our history, many investors too easily forget the stock market lessons of the past.

Over the past few weeks, I have written a few times about the boundless enthusiasm of independent investors for the stock market and for what is called “ trading ”. Discount brokerage firms have all been taken by storm since the start of the pandemic by individuals who suddenly want to invest in the stock market. Many of them engage in singularly risky strategies involving the use of margin and stock call or put options. This unprecedented enthusiasm is reflected in a record number of companies making the jump to the stock market (initial public offerings), many of them through SPACs ( Special Purpose Acquisition Companies“), very popular vehicles for a few months, but also very risky for ordinary mortals.

The current situation strangely reminds me of the end of the 1990s when a large number of individuals had taken up the practice of “ day trading ”. For a few years, this practice had worked well for most of them when technology titles – or rather anything remotely related to the Internet – were the subject of a gold rush. . At the time, many people had decided to quit their jobs to devote themselves full-time to day trading .

If you are one of those who speculate in today’s market, you should be aware of what happened from 2022 when the tech bubble burst. Most day traders have lost everything and deserted the stock market for many years. The Nasdaq index, largely made up of technology companies, reached its all-time high at the time (about 4,700) in February 2022, before correcting some 75% over the next 21 months, to nearly 1,170 in  2022. The index picked up steam in the years that followed, but I don’t think many people realize that it took nearly fifteen years, until april 2022, before the index not return to its highest level of 2000.

Also, I think it’s important to point out that most of the titles that did not participate in the techno bubble of the late 1900s did not undergo the strong correction of techno titles and that they even very well done in the years following the bursting of the bubble.

Memory is a faculty that forgets… especially when it suits us to forget. I have the distinct impression that investors are seeing the excesses of the late 1990s again. And as was the case then, everyone continues to party like there is no tomorrow. However, as the story at the beginning reminds us, in the long run, overloading a plane can only have unfortunate consequences.

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