Market Mood Swings and the Myth of Control
If I am being honest, it was entertaining watching the market whipsaw back and forth over the last couple of weeks.
But even better? Watching everyone try to explain it.
Reactions ranged from panic to overconfidence, with just enough rationalization sprinkled in to keep things amusing.
If nothing else, scanning headlines in The Wall Street Journal or Bloomberg every morning and afternoon is a masterclass in market mood swings. A day-by-day account from last week:
Tuesday: “Wall Street Faces Toughest Test in Years…”
Wednesday: “This is a Great Time To Buy: Tariff Pause Sparks Historic Rally…”
Thursday: “Market Turmoil Spreads Across Globe…”
Friday: “Stocks Roar Back with S&P Climbing 10%…”
Saturday: “Trade War Jitters Continue to Batter Stocks…”
What would we do without this invaluable guidance and commentary?
Two things stood out to me last week.
First, there’s an odd belief floating around that the stock market has become the direct responsibility of the American President.
Silly me, I thought the market was millions of people buying and selling based on a chaotic mix of information, emotions, and incentives.
I think the finger-pointing at the White House represents a profound lack of accountability:
"Your headlines freaked me out. Since I’m terrible at managing my emotions, I panic bought/sold, and now this volatility is your fault."
Ok.
But I digress. The volatility isn’t going anywhere. And with it comes the usual flood of forecasts, hot takes, and “expert” predictions.
I found myself reflecting on a few of my favorite market studies—ones that shine a light on just how questionable short-term market behavior really is.
Trading Is Hazardous to Your Wealth
In 2000, UC Berkeley finance professor Terrance Odean published a landmark study analyzing 10,000 individual brokerage accounts over seven years. That’s 163,000 trades, tracked and dissected.
Odean looked specifically at trades where an investor sold one stock and bought another—essentially making a bet that the new pick would outperform the old one - buy the "dip” and sell the “top”…
What did Odean find?
On average, over the course of one year post-trade, the stocks investors sold outperformed the ones they bought by 3.2 percentage points annually.
They weren’t just unlucky. They were predictably wrong. Their confidence wasn’t a sign of insight—it was a liability. And the market punished them for it.
The Overconfidence Trap
For years, researchers at Duke University surveyed CFOs of major corporations, asking them to predict the next year’s S&P 500 returns. Over 11,000 forecasts later, the conclusions were in:
The correlation between the CFO’s forecasts and actual market returns was slightly negative. Meaning - when they said the market would go down, it was slightly more likely to go up.
The CFO’s had no idea.
Worse still, they didn’t seem to know how wrong they were. There was no self-correction, no humility in the data. Just pure, undiluted overconfidence.
The lesson?
Predicting the near-term market—whether you’re a retail trader or a corporate CFO—is mostly a coin flip, but with worse odds. Yet we continue to treat forecasts like facts and confuse gut feelings with expertise.
So next time the headlines scream doom or euphoria, maybe take a breath. Remember the studies.
And maybe don’t hit the “buy” or “sell” button just yet.
I thought it would be a good time to bring this gem back.
That is all for today.
Have an epic Sunday,
Jay
Great post Jay!
I bought some Gold 4 or 5 years ago. Physical Gold that I put away in a secure insured safe place. I then put it out of my mind & tried to forget about it as much as possible. I was pretty successful in doing that. Anyway after seeing the price of Gold on Friday gone. I realised Gold had performed better that any stocks I'd previously owned & sold to buy that Gold by a long way. Next time I manage to gather some funds together(which is becoming really hard to do). I'm going to buy some Silver. I will also try & forget about that for at least 5 years. Seems to me metals are far more stable than anything these financial "experts" have anything to do with.