When Stocks Plunge

The U.S. stock market once again fell big overnight – major indexes over there like the S&P 500, DJIA, and NASDAQ all dropped by nearly 3% – after a wild August.

What might the local stock market in Singapore do when stock market opens in less than a hour’s time (it’s 8:08 am as of the time of writing)?

Will the Straits Times Index (SGX: ^STI) and its trackers – the SPDR STI ETF (SGX: ES3) and the Nikko AM STI ETF (SGX: G3B) – fall big in tandem with U.S. stocks? No one knows. But here are some comforting thoughts to handle a fierce market decline if it does happen.

“Global jitters” was used in the media 933 times last week to describe why the U.S. market was falling, according to Google. Thanks, that’s really helpful. It’s the equivalent of a doctor diagnosing you with “general illness.”

S&P 500 companies earned something around US$38 billion in profits over the last two weeks. Over time, that number will matter far more than what the U.S. stock market did during the last two weeks.

The biggest impediments to a comfortable retirement are impatience, pessimism, gullibility, self-interest of middlemen, ignorance of the exponential function, and overconfidence. All six come out during market downturns.

U.S. President Barack Obama was briefed after U.S. stocks fell 10%. The funny thing is he will very likely not be briefed after a 10% rise. Asymmetric emotional responses explain so much of why investing is difficult.

Daily market prices for stocks are determined by computers in New Jersey fighting to be a billionth of a second closer to exchanges than other computers. Business values are determined by 7 billion people around the world waking up every morning trying to better themselves. If you bet on the latter and laugh at the former, you’ve figured half this game out.

If this decline in the U.S. stock market keeps up, it could be as bad as the 2011, 2010, and 2004 downturns that no one remembers or cares about anymore.

When no one knows what the economy or stock market will do next, people say there’s high uncertainty. This is different from low uncertainty, when people think they know what the economy and stock market will do next, invariably followed by being wrong, which they blame on high uncertainty.

U.S. investors have US$16 trillion in mutual funds. It sounds huge when they withdraw US$20 billion, but it’s a fraction of 1% of what’s outstanding. Even during big downturns, “Nearly all investors do nothing; go about their day; couldn’t care less about yuan devaluation” is the most accurate headline.

“Be greedy when others are fearful” sounds obvious during bull markets, smart during small pullbacks, and reasonable during medium pullbacks. Sadly, they sound nigh impossible during big downturns.

Your odds of dying in a car accident during your life are 1 in 74. That rarely makes headlines. The odds of an investor experiencing a big market crash during their life are 100%. But we treat it like it’s something rare and dangerous.

Stocks in Singapore are down quite a bit in the last month, down a lot in the last year, up a lot over the last six years, and down a lot over the last eight years. Pick your narrative, and you can tell a persuasive story.

Ninety-three percent of the world does not own stocks. Zero percent of market commentators can believe this.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. This article was written by Morgan Housel and first published on It has been edited for