You look at the headlines, and the market is dropping. I mean really dropping. Hundreds of points. The headlines are dramatic, with words like "bloodbath", "bloodletting", and the day ends with "blood on the street". You feel bad. Really, really bad. You've lost a bunch of money. You don't even know how much, but it must be a lot. And the reason you feel so terrible is because you feel stupid. You know that somehow this is all your fault. You shouldn't have been putting your money in the stock market; You should have read all those articles; you should have allocated your portfolio better; you shouldn't have bought that European fund. You kick yourself for being so dumb. And then you feel much worse. And since you're feeling so worthless you decide to really torture yourself by actually checking your portfolio value. You lay there wallowing in the pain and humiliation of watching your net worth dwindle. But hey, why stop there? While you're at it, why not go for an in depth exploration of all the other pain you've caused yourself in life? Or perhaps the pain you've caused your mother?
So there you are, feeling rotten. The market just dropped about 10%, and when you filled out that risk-tolerance assessment questionnaire you just never imagined that in real dollars and cents it would be this painful. The experts tell you to hang on because the market will come back and you'll feel really dumb if you sold at the bottom. You know that after the market fell apart in 2008-2009 it sprung back about 100%. But you still feel awful. Then suddenly it occurs to you that the people who are much richer than you probably lost a lot more money, because 10% of their net worth is a lot more than 10% of your net worth. And then you think of someone REALLY rich, like Oprah. She's apparently worth about $2.7 billion, according to Forbes. You calculate that 10% of $2.7 billion is $27 million. You imagine what it would be like to lose $27 million, but you can't, because you can't imagine HAVING $27 million (if you DO have $27 million, just play along and don't rub anyone's nose in it). And you wonder, did Oprah just lose 27 million dollars? Does she know about it? Does it bother her? Does she feel stupid about it? Well, if she DOES, you wonder if she feels more stupid than you because she lost a lot more money, and if she DOESN'T feel bad about losing $27 million, then what are you so worked up about?
Money is such an abstract concept. We humans went from being hunter-gatherers, to being barterers, to using currency, and our brains still haven't really managed to make sense of it all. Rather than creating or gathering all we need right NOW, we receive a certain number of dollars for goods or services we provide, and we trade those dollars for food, shelter, iPads, braces for the kids, trips to Mexico, and what we think we will need to cover our living expenses when we're old, based on random guesses of how long we think we will live and how expensive our healthcare will become. And we're not naturally very good at thinking about anything besides RIGHT NOW. So we try to stockpile our money (or as investment philosophers call it: the return on our human capital) for the abstract and unknowable concept of our future needs.
Based on all that uncertainty, how can you ever know if you have enough? And that's really the question: How much is enough? And then you look at the value of your portfolio, and you try to figure out what's the correct level of bad/stupid you SHOULD feel.
And then you think about someone with much less money than you. You think of that broke musician friend of yours who's always just barely scraping by. That friend has no savings or investments at all, so all this means nothing to him. He lost no money at all during this market selloff. He probably doesn't feel any differently about himself now than before all this. He's not kicking himself and feeling stupid. He may not even have heard that the market just tanked.
So if you were broke too, you wouldn't be kicking yourself either. But you would still be broke, rather than just down 10%, and that 10% isn't anywhere near Oprah's $27 million, which you imagine would probably feel worse to lose, so you start feeling a little better about yourself. You may be dumb, but you're not stupid enough to have lost $27 million dollars, and you're not completely broke, which is good because however much you're going to need in the future, it's definitely more than zero.
See how smart you are?
Now go reward yourself with some chocolate, and later you can find a new reason to kick yourself. Maybe for indulging in too many sweets. Does that bring us back to Oprah?
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