Why We Care About Short Term Trends
Unless you have been living under a rock for the past 7-8 months, or secluded in your private bunker, you will have heard, seen or read tons of stories about trends. Infection rates, deaths, testing, economic etc. the list goes on. We have in one way or another become engrossed in studying and interpreting trends. Especially negative trends!
I think there’s a saying about car wrecks and not being able to take your eyes off of them, right?
Sadly, we become transfixed like a deer in headlights, when it comes to “bad news.” There is something in our psyche that makes us hyper-aware when it comes to negative reporting, especially the type of reporting that is required to get clicks, re-tweets, and subscriptions. I really think the psychological and emotional reaction must be a hold-over from our caveman days. For example, eons ago, if you were picking berries in the woods and your buddy yelled “there’s a cat coming,” you ignored him at your peril! Saber Tooth Tigers were a major pandemic back then!
I’m digressing, I really want to talk financial trends in the real estate market and why the psychological aspects really dictate how we view those facts and figures. Briefly, a financial trend is the measure of direction and momentum of a market, price or other economic indicator. In accounting trend analysis, it is the measure of percentage change of one variable over a two-year period. In investing, trend analysis is simply the use of past performance to predict future price movement of a security. But no trend analysis is done in a bubble, you still have to pay attention to the entity’s financial performance, as well as general economic conditions to accurately predict a future behavior.
So, why are we always fixated by short term figures? I believe that the answer lies in our need to protect a sense of “control” in our decisions. As humans we have a deep engrained need for that perception of control. It is argued that the need is likely a psychological and emotional necessity (1). The idea of “choice” or “self-determination” is especially strong in the United States and individuals exercise control over their environment by the choices they make. These choices can be once in a lifetime (what college to attend) or simpler, basic choices that are made hundreds of times a day (example, deciding where to look while you are walking). When we have a catastrophic event; pandemic, Wall Street crash, recession, war etc. our sense of “control” of our environment, perceived or real, is threatened. The removal of choice is a major stressor and produces greater fear, more negative perceptions of the stimulus or event, narrowing of attention, and greater effort placed on regaining control (2) Now, that sounds familiar, right?
So next time you find yourself “tinkering” with your brokerage account or thinking about buying 86 rolls of toilet paper, stop and ask yourself “why?”
(1) Born to Choose: The Origins and Value of the Need for Control; Lauren A. Leotti, Sheena S. Iyengar, and Kevin N. Ochsner, 11 October 2011
(2) Friend TH. Recognizing behavioral needs. Applied Animal Behaviour Science. 1989; 22:151–158.