It has been a while since I have put pen to paper. Only a few months, but it feels like an eternity.
The last time I did so, I discussed how the current structure of the stock market–driven as it is by quantitative and passive investing strategies–has caused more than its statistical share of herding behavior. The resulting biases and market structure, I argued, create opportunities that all active investors can capitalize upon.
In the last month, this market structure has collided with one of the worst crises humanity has faced in a generation. The untold human tragedy and cost of COVID-19 will leave a lasting scar on humanity. But the reaction to this crisis by market participants has created opportunities we are unlikely to see again in our lifetime.
Now, I do not want to play down the severity of COVID-19, nor do I want to make anyone think that the actions we are taking in response to the outbreak are an overreaction. They are not. In fact, if anything, when it comes to preparing for this virus, the actions taken so far are an underreaction. Rational behavior towards preparing for a pandemic, however, does not necessarily map to the rational pricing of financial assets.
Thinking and acting differently. TODDWMAC – PIXABAY