I Guess I’m Bearish Now

One of the simplest ways to explain how a market functions is that rising prices attract buyers and falling prices attract sellers. Theory doesn’t always cooperate with reality, however, because prices don’t always fall neatly into one of these two columns.

Often times prices are rising and falling and falling and rising.

It’s never easy to predict the future, but it’s even harder when stocks are middling, which is where we are today.

The S&P 500 is 10.2% below its all-time high, but 12.5% above it’s recent lows.

When stocks are equidistant between their highs and lows, it stands to reason that neither the bulls nor the bears have the upper hand. So how do we view the middle markets?

In a perfect world, we would view things objectively, paying no mind to sunk costs or previously held beliefs. But in the real world where hindsight bias attacks your senses, whether you’re bullish or bearish can sometimes be determined by what you own.

Let me share a quick story.

Years ago when I was trading, probably 2010 or 2011, I had some fun trading weekly options around earnings releases. I was gambling, which is not something I only recently came to terms with. I knew it at the time which is why I never put a lot of money at risk. During one of these wagers I meant to buy calls, but by accident I bought puts. In that moment a funny thing happened. It wouldn’t have been much trouble to unwind this trade, but instead I rationalized why puts were the right decision. “I guess I’m bearish now,” I thought. My actions influenced my mindset. I was owned by my possessions.

Take a look at your portfolio. I bet there is at least one position that you wouldn’t buy today but that you won’t sell tomorrow.

Our portfolios are not a blank slate, we build positions over time, which can influence how we feel about these positions individually and how we feel about the market as a whole.

How you view the market is not necessarily reflected in your portfolio. Perversely, what you own often determines how you feel.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.