This post was originally shared in my DT Email Newsletter here.
This is the reason why I enjoy my work so much…
I mean wait, what?
Now, I’m definitely not trying to say aliens don’t exist. But sometimes, things sound so out of this world, the logic becomes interesting. And this never fails to make me chuckle.
I mean, when an institution needs to make a big decision, what’s the next best thing you could do? Tell a good story.
I just want to say if a country ever wants to announce or do something so extraordinary, I’m pretty sure the consequence is not going to be an alien invasion.
The real objective would be seeking a “seal of approval” from the public. The seal of approval to make a major decision, or a big change.
Sometimes, that decision could mean declaring a crisis. Sometimes, it may mean launching a war (sounds familiar?).
At other times, it could even be capturing a President and his wife in their house through a helicopter.
As long as the story changes the people’s belief that it justifies a government’s actions.
The stock market behaves the same way. After all, it’s a collective of many people who love a good story – whether these stories are well supported by a fundamental basis is another thing.
It tells me this: Mr. Market isn’t as clear headed as what people imagine. Mr. Market would price in grand promises of explosive growth, or even a revolutionary future that’s supposed to change everything.
When these stories gain momentum, people would rush to anything that feels safe, or exciting at that moment – even driving blue-chips to sky high valuations.
That’s also what the former Bank of England analyst was really trying to highlight. It’s not about aliens. But how fragile systems can be when irrationality takes over.
Some call it an ontological shock. It’s the moment when a shocking idea or event disrupts people’s understanding of reality.
When that happens, behaviour can quickly turn unpredictable and irrational. Put it simply, investors herd together, fear spreads, and markets can swing violently.
This is the same mechanism that drives: stock market bubbles, manias and boom and bust cycles.
Because at some point in every big market cycle, logical reasoning gets thrown out of the window. The numbers stop making sense, yet valuations keep going up because the momentum is simply too powerful.
If you take away all that alien headline, the message is this: Financial systems are fragile to changes in belief and confidence. In one moment, everyone gets excited because of a change.
Yet the next moment, markets collapse because people lose trust in the system. Even if it has nothing to do with economics, it can trigger panic.
I’m a long-term investor. I try not to predict the next big story in the stock market. But more important is recognizing when a story has gone too far – whether the story today still makes any logical sense.
By the way, if you want to get started investing, learning the proper frameworks, and achieving your financial independence, you can join my Build Your Monster Dividend Portfolio Online Course.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
