When you’re a farm-raised turkey, life is pretty carefree. You eat all you want. You sleep whenever. You wander around in the sun gobbling and doing whatever it is turkeys do. Your status quo from one day to the next is the bird equivalent of the good life.
And then one day in late fall, your status quo changes for the absolute worst.
Nassim Taleb used this analogy in his book The Black Swan to illustrate how investors often behave like a Thanksgiving turkey. After years of positive returns, investors assume the status quo is up… until along comes a crash in stocks and suddenly it’s not up anymore.
Investors miss the market’s big inflection points because they project today onto every tomorrow they can foresee – indefinitely. Though Taleb didn’t mention it in his book, the same mental frailty applies to moments like now… moments when every tomorrow looks bleak, and the only direction stocks will ever know from here on out is down. (more)
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