When We Mistake the Map for the TerritoryNow that we know the virus is not going to get even remotely close to what the models were projecting (for now). I think it’s relevant to compare this V-shaped price recovery to the December 18 market plunge.
Dec. 03 peak to Dec. 24th trough = we plunged 17.10% (in 3 weeks)
From that bottom to Jan. 18 peak = we rebounded 14.74% (25 days)
-->We recuperated about 86.5% of that percentage loss
Feb. 19 peak to March 23rd trough = we plunged 35.72%
From that bottom to our April 20th peak = we rebounded 31.5% (also 25 days!)
-->We recaptured about 88% of that percentage loss
*Now why did I choose these specific dates?? Answer: Because both April 20 (2020) and Jan. 18 (2018) are the peaks we made before we deviated from that “V-shaped recovery channel”
Conclusion:
In both V-shaped recoveries, we recapture roughly 87% of that % loss in “coincidently” 25 days as well. And then deviated out of the V-shaped channel, tested the nearest support for confirmation, and tipped off a new bull market. It probably boils down to some sort of market psychology that repeats in these types of circumstances...
Now unlike the conventional belief right now, why is it all of sudden relevant and perhaps helpful to compare this crash to December 2018’s?
1)it’s the most recent liquidity crisis we’ve had
2)it was an overreaction to the potentiality of something
-fear that we’re due for a recession because this bull run is much longer than its predecessors
-this cycle has lasted for 10 years whereas the average is 4.5 years. This does not constitute a recession!
-However, this bad logic no longer mattered once the fear becomes a contagion
3)The unraveling effect. This begins when people are provoked(by media) to look for these assurances and “oddly enough” they find these assurances
As the wise Nassim Taleb says when describing cultural products, "It is hard for us to accept that people do not fall in love with works of art only for their own sake, but also in order to feel that they belong to a community. By imitating, we get closer to others-that is, other imitators. It fights solitude."
Just think about it for a minute. If you were really to boil down and I mean really...The Covid crash, Dec. 2018 crash, Feb. 2018 “Peak”, Dot Com tech bubble, 01’ panic were all triggered by nothing more than a cultural product. How do contagions come about? We as humans scorn the abstract, we hate uncertainty. What we have is an aptitude for reduction. We find patterns where there are not (at first). Where can these patterns be found? What does the current language around me sound like? Most people just accept this as truth but all it is, is majority opinion that becomes so widely accepted that it becomes reality.
This according to the book Black Swan is called “platonicity” which is our tendency to mistake the map for the territory. We focus on the pure and well-defined forms, the overgeneralizations, the things that make sense. And where things get dangerous is when, “...these ideas and crisp constructs inhabit our minds, we privilege them over the less tractable structures
Platonicity is what makes us think that we understand more than we actually do. Now obviously this does not happen everywhere. Only in specific applications are these models, and constructions, these intellectual maps of reality wrong. “These models are like potentially helpful medicines that carry random but very severe side effects...The platonic fold is the explosive boundary where the platonic mindset enters in contact with messy reality where the gap between what you know and what you think you know becomes dangerously wide. It is here that the Black Swan is produced.” (Nassim Taleb)
