“Below the smooth surface of official accounts of history, lie those stories that have been silenced and erased, leaving only their ghostly traces, and therefore bound to return and haunt the present.”
~ José Colmeiro, A Nation of Ghosts
An experience, any experience with painful memories shapes reactions and action for a long time.
An accident, a violent crime, even sudden death of a near one makes humans wary of action that could lead to a similar outcome.
The event and its after-effects might fade into past, and normal life might begin its “treadmill existence”, however some-where at the back of your mind, the facts, perceptions, and memories refuse to go away.
Patricia Hampl puts it in her book I Could Tell You Stories: Sojourns in the Land of Memory:
“Memory,” she says, “is not a warehouse of finished stories, not a gallery of framed pictures.”
Basically, memories are like reading a book.
Each time you re-visit, new facets come-up that you had not realized earlier.
A new way of looking at memories become evident and that can change how you narrate the memories over time.
The “Lehman” Moment
Every-time since 2008, a financial institution or related party gets into trouble, the “Ghost of Lehman” is resurrected.
Lehman was the poster boy of 2008 Great Financial Crisis.
Charles Prince famously said about Citigroup’s continued commitment to leveraged buy-out deals, despite fears of reduced liquidity because of the occurring sub-prime meltdown: “As long as the music is playing, you’ve got to get up and dance.”
Everyone was dancing and no one seemed worried.
Every large balance sheet had leveraged products that had been collateralised several times over and ultimately most boards realised that no-one knew how much shit they were carrying.
The lucky once sold early (read JP Morgan), others got bailed out (Citi, AIG Bank of America, or acquired (Merrill Lynch).
Lehman was left to hang dry.
Is that What’s Happening to Evergrande?
Chinese govt. has been changing its policy on unbridled, unquestioned growth.
China’s new principle of “homes are for living in, not for speculation” and ensuring that risk is contained pro-actively is playing out here.
Evergrande is that poster boy for that lesson to other developers.
“Fear of Death” not Actual “Death”
Sigmund Freud said “Goal of every life is death”.
Its inevitable, however humans still fear death.
But if someone actually dies, there is no fear.
China is perhaps invoking that Fear to make people fall in line and promote its “Common Prosperity theme”.
Or maybe not
But one thing seems clear that this is a self-induced situation and hopefully China is in control.
Anytime you can anticipate, visualise or see a risk-it stops being one.
The reason being that then you can plan for it.
What your plan will be a factor of your “risk-profile”.
Risk-profile is a personal issue that makes sense to one individual but might not make sense to another as they might have a different risk-profile.
The idea is to stick to it rather than fight it, because that is what will give your peaceful sleep at night.
So if a 20% crash which is “par for the course” for stock markets is not for you, you should not be participating in the markets.
On average a 16% crash has happened in stock markets every year and it is definitely not everyone’s cup of tea, which is a very fair way to look at the markets.
What should you do?
- Measure your risk-profile;
- Attune your mental approach to “how much loss can you take”
- Markets can surprise you in the opposite direction for a long time, so be prepared for regret of losing out on “what happened” vs. “What you thought would happen”
Decide clearly whether you are in the camp that takes advantage of a crash or sitting it out.
It’s important for investors to write down their strategy and re-visit it.
Avoid regret at any cost.
And finally as always “Stay the course”