Investor Vertigo

I don't usually talk much about financial markets, but today I felt like reflecting a bit on what's been happening these last few weeks: investor vertigo. Vertigo is defined as "a sensation of movement or spinning, often described as dizziness." In the case of investors, it translates into a fear that makes them sell without a realistic reason.

Image created by AI

Financial markets have been on a bull run for years, and this is perceived by many investors as too good to be true. Therefore, they believe a sharp correction is inevitable. So, instead of looking for realistic data to justify selling if they consider the market overvalued, they look for excuses to quickly exit the market and then return when they believe the danger has passed. This causes disruptions that are often exploited by those who truly make long-term investments.

I used AI to find several examples of investor vertigo, but I'm only going to present two. Of course, there are many more.

• Flash Crash of May 6, 2010
  The Dow Jones Industrial Average fell almost 1,000 points (9%) in minutes.
  Although it recovered that same day, many retail investors placed market sell orders and lost money unnecessarily.

• Bitcoin Crash of 2022
  BTC fell from $69,000 (November 2021) to less than $16,000 (November 2022).
  Thousands of people who bought during the 2021 euphoria sold at $17,000-$20,000 out of pure panic, right at the bottom of the cycle.

Fear is a very useful emotion for human beings, but panic is not.