The Dow Jones Industrial Average is now falling for a seventh straight day. As weakness begets more weakness, you might be thinking to yourself, “this time feels different.” You’d be right, this time does feel different. It always feels different.
The reason every potential correction feels different is because we aren’t wired to remember exactly how we felt on those occasions. We remember some main highlights then fill in the rest.
From Daniel Gilbert’s Stumbling on Happiness:
“Remembering an experience feels a lot like opening a drawer and retrieving a story that was filed away on the day it was written..,that is one of our brain’s most sophisticated illusions. Memory is not a dutiful scribe that keeps a complete transcript of our experiences, but a sophisticated editor that clips and saves key elements of an experience and then uses these elements to rewrite the story each time we ask to reread it.”
Everybody knows how important psychology is to the market. The tricky part is being aware of how our own mind can work against us. One simple way to combat this is to write down how you are feeling when markets invoke strong emotions. This way you’ll realize that this actually does feel like every other time, even if you don’t remember it that way. Studying market history is important, but studying the history of your own behavior can go a long way to making you a better investor.