4 ms·

A coworker told me he thinks as long as people think it might crash it won’t crash.

by erikpukinskis 7y ago

arcturus17 7y ago
That makes no sense.
- slumdev 7y ago
  It's a riff on the "fearful when others are greedy and greedy when others are fearful" Warren Buffett quote.
- halfjoking 7y ago
  It only makes sense if you don't comment it doesn't make sense.
- wastedhours 7y ago
  Not necessarily agreeing/disagreeing, but there might be some mileage in the notion. If people think it might crash, they may take some hedge stances that shore things up. If they thought the game will play on, they might take more risks and kick the legs right out from under the chair.
- Turing_Machine 7y ago
  It sort of does. When people start thinking that a market is going to go up forever, that's a sign of a classic bubble.
- rmah 7y ago
  The thinking behind "as long as people think it will crash, it won't crash" is as follows... 1) most people thinking that a crash is near means that they view the stock market to be overpriced. 2) this means they won't buy as much and inflate prices even further. in fact, many may start to sell. 3) this will tend to limit price increases and may even depress the markets a bit 4) Thus, while there may be a decline if economic conditions turn sour, there's a lower likelihood of a "crash" (large drop from current prices).
  - nck4222 7y ago
    Or alternatively: 3) this will cause prices to start dropping, which increases uncertainty, and causes additional sells. 4) thus we enter a loop where uncertainty increases, which causes more selling, which causes price decreases, and the market crashes. Market prices are largely a function of market confidence. If confidence erodes, so does the market. It's how bubbles burst.
- sdinsn 7y ago
  It does. If people think valuations are inflated and a correction is near, then then they'll be less likely to invest, which stunts valuation growth.
partiallypro 7y ago
In 1987 before the crash the market was already down substantially and people were worried it could get worse. So, I'm going to disagree. I think it is true that the market can keep going up as people think it will crash because they keep shorting the market and getting squeezed which propels the market even higher.
thrower123 7y ago
As long as there are huge piles of cash floating around looking for something to be invested in, it's not going to crash. Everybody buys into every little dip, on the assumption that it'll go back to where it was, and they will make some money. Because they do this, it does go back up to where it was, or a little higher, and the piles of money get bigger.
- joelbluminator 7y ago
  "As long as there are huge piles of cash floating around" : is this due to the low interest after 2008? Even still, I would assume stock prices can't exceed a certain threshold relative to the company's earnings as it won't make economic sense; but if indeed there are no other investment alternatives I guess it does? Maybe just hoarding cash and waiting for a crash is the best strategy?
  - thrower123 7y ago
    The old chestnut is that the market can stay irrational a lot longer than you can stay in the black trying to bet against it. Keeping money in S&P500 index funds is giving 5-10% returns over the past three and a half years. Bank accounts and money-market funds don't even give you 1% over that period.
    - joelbluminator 7y ago
      Indeed, that's the common investor wisdom. But I have to say it's getting scarier by the day. If you hoard cash or put it in a savings account you risk inflation. If you put it in the market you risk 40% crash is we witnessed twice the last 20 years. You might say bonds but they carry a risk as well as interest rates may pick up at some point. I'm staying in the market but can't say I'm loving it.
AznHisoka 7y ago
Or the crash may be a slow burn crash. Like bitcoin. Heck after 2.5 years, the price is still 50% higher than it was.
- 2zcon 7y ago
  Or we could stagnate for 30 years, like Japan, and be forced to start drawing down before it has a chance to grow. You don't get a Mulligan. The current fetishisation of index funds - which I am entirely complicit in - seems to be based on drawing long-term extrapolations from a relatively short timescale in a relatively narrow market which didn't actually have funds that tracked indices, saw the rise of modern computing, and followed the most destructive wars in the Western world.
zelly 7y ago
This is correct. Neither the public nor the majority of economists have ever been able to predict a stock market crash. Price only crashes when reality falls short of expectations. The fear is priced in. As long as everyone is expecting a crash, virtually no news can be worse than $(calamity causing event) which seemingly is anticipated.
linuxftw 7y ago
Markets don't organically crash anymore. They just halt trading, the central bank pledges to increase their balance sheet, the cycle continues.
- deleted 7y ago
  [deleted]

A coworker told me he thinks as long as people think it might crash it won’t crash.

arcturus17 7y ago

That makes no sense.

slumdev 7y ago
It's a riff on the "fearful when others are greedy and greedy when others are fearful" Warren Buffett quote.
halfjoking 7y ago
It only makes sense if you don't comment it doesn't make sense.
wastedhours 7y ago
Not necessarily agreeing/disagreeing, but there might be some mileage in the notion. If people think it might crash, they may take some hedge stances that shore things up. If they thought the game will play on, they might take more risks and kick the legs right out from under the chair.
Turing_Machine 7y ago
It sort of does. When people start thinking that a market is going to go up forever, that's a sign of a classic bubble.
rmah 7y ago
The thinking behind "as long as people think it will crash, it won't crash" is as follows... 1) most people thinking that a crash is near means that they view the stock market to be overpriced. 2) this means they won't buy as much and inflate prices even further. in fact, many may start to sell. 3) this will tend to limit price increases and may even depress the markets a bit 4) Thus, while there may be a decline if economic conditions turn sour, there's a lower likelihood of a "crash" (large drop from current prices).
- nck4222 7y ago
  Or alternatively: 3) this will cause prices to start dropping, which increases uncertainty, and causes additional sells. 4) thus we enter a loop where uncertainty increases, which causes more selling, which causes price decreases, and the market crashes. Market prices are largely a function of market confidence. If confidence erodes, so does the market. It's how bubbles burst.
sdinsn 7y ago
It does. If people think valuations are inflated and a correction is near, then then they'll be less likely to invest, which stunts valuation growth.

partiallypro 7y ago

In 1987 before the crash the market was already down substantially and people were worried it could get worse. So, I'm going to disagree. I think it is true that the market can keep going up as people think it will crash because they keep shorting the market and getting squeezed which propels the market even higher.

thrower123 7y ago

As long as there are huge piles of cash floating around looking for something to be invested in, it's not going to crash. Everybody buys into every little dip, on the assumption that it'll go back to where it was, and they will make some money. Because they do this, it does go back up to where it was, or a little higher, and the piles of money get bigger.

joelbluminator 7y ago
"As long as there are huge piles of cash floating around" : is this due to the low interest after 2008? Even still, I would assume stock prices can't exceed a certain threshold relative to the company's earnings as it won't make economic sense; but if indeed there are no other investment alternatives I guess it does? Maybe just hoarding cash and waiting for a crash is the best strategy?
- thrower123 7y ago
  The old chestnut is that the market can stay irrational a lot longer than you can stay in the black trying to bet against it. Keeping money in S&P500 index funds is giving 5-10% returns over the past three and a half years. Bank accounts and money-market funds don't even give you 1% over that period.
  - joelbluminator 7y ago
    Indeed, that's the common investor wisdom. But I have to say it's getting scarier by the day. If you hoard cash or put it in a savings account you risk inflation. If you put it in the market you risk 40% crash is we witnessed twice the last 20 years. You might say bonds but they carry a risk as well as interest rates may pick up at some point. I'm staying in the market but can't say I'm loving it.

AznHisoka 7y ago

Or the crash may be a slow burn crash. Like bitcoin. Heck after 2.5 years, the price is still 50% higher than it was.

2zcon 7y ago
Or we could stagnate for 30 years, like Japan, and be forced to start drawing down before it has a chance to grow. You don't get a Mulligan. The current fetishisation of index funds - which I am entirely complicit in - seems to be based on drawing long-term extrapolations from a relatively short timescale in a relatively narrow market which didn't actually have funds that tracked indices, saw the rise of modern computing, and followed the most destructive wars in the Western world.

zelly 7y ago

This is correct. Neither the public nor the majority of economists have ever been able to predict a stock market crash. Price only crashes when reality falls short of expectations. The fear is priced in. As long as everyone is expecting a crash, virtually no news can be worse than $(calamity causing event) which seemingly is anticipated.

linuxftw 7y ago

Markets don't organically crash anymore. They just halt trading, the central bank pledges to increase their balance sheet, the cycle continues.

deleted 7y ago
[deleted]