One of the more interesting human behaviors is called “anchoring,” which is the tendency to view things in a strict relationship with other things.  When we think of the Crash of 1929 in the stock market, we think of utter destruction, of stocks becoming worthless, of investors suddenly becoming penniless.  Now, when we see stocks plunge, we instantly associate it with the Crash of 1929.  We are anchored to that bad memory . . . of something before we were even born.

We are NOT experiencing the Crash of 1929!  We are not perched on the edge of a depression.  In fact, I seriously doubt if we will experience anything even close to the 2008/9 global financial crisis, when stocks dropped 52%.  Larry Fink is the head of the gigantic asset manager named Blackrock.  He said this morning that another 10% drop was “possible.”  I think that is reasonable.

First, there is scant economic evidence that a recession is approaching.  The U.S. economy is doing comparatively well.  Furthermore, economic historians quibble as to whether the U.S. has ever imported a recession from another country.  The point is that importing a recession from somewhere else is very unlikely to happen.

Second, our banking system and stock market practices are vastly safer now than 1929.  Banks have never had such a large capital cushion before.  Just try to get 90% margin in 2016!  There may be a remote possibility that stocks go down 50% again, but it is even a more remote possibility that individual stocks would go down 100%, like in 1929.  Besides, what happened last time that stocks dropped 50%?  The market came back up over 200%.

Third, long time readers know I have no worry about recessions.  They come, and they go.  I do fear another financial crisis like 2008/9.  If that happens, it will NOT develop here.  We would have to import it from abroad, probably from China.  If a larger financial crisis in 2008/9, which was based in the U.S., could only drive down our stock market by 52%, why are we so afraid of a smaller financial crisis elsewhere?

Forth, our investment psyche is not accustomed to geopolitical events in a globalized world.  That causes us to over-react.  The stock market was not wildly over-priced before this slide began.  Still, investors are selling because they don’t understand the impact of a cold war between Saudi Arabia and Iran, as just one example.  If the Clueless Wonder of North Korea really has an H-bomb, should we sell all our stocks?  No, of course not!

We need to pull up our big-boy pants and start taking advantage of all these buying opportunities!