Unpleasant surprises make people uncomfortable. We look for reasons why those events happened so we can believe there is order and direction to our lives.

Today, investors worry about the next big decline. These events seldom provide advance notice of their arrival. It is nearly impossible to identify—in advancewhere they begin and where they end.But each time we experience a bear market, investors want to know why it happened. People will look for a specific event which triggered the sell off. There has to be one right? It can’t be some random event, can it?

Looking For A Reason

So we look backwards to find the reasons and rationalizations. Somebody assigns blame, and identifies key data points. They shout from the rooftops, “This is why it happened!” And we accept it as the gospel truth, because it makes us feel as if there is order and direction. 

Here is the thing we have learned about “order and direction” in the financial markets. It exists until it doesn’t. Bull markets rise well beyond their limits. Bear markets fall farther than they should. Order and direction have nothing to do with short term events.