10.20.07
October 19, 1987 - October 19, 2007: Twenty Years Revisited
It’s now twenty years since the fateful day known as “Black Monday” when the Dow Jones Industrial Average dropped by 508 points, or 23%, making it the single worst day in the history of the American stock market, and therewith, a similar pattern of enormous drops occurred all across the world.
So, it seems appropriate, on this 20th anniversary, to reflect on that event and think about its implications, especially as we’re observing so many fledgling stock exchanges emerging globally.
I’ve been reading a bit by a fellow named Jason Zweig, a journalist for Money magazine. His new book, Your Money and Your Brain, is a fascinating examination of what goes on in our brains when we make decisions about money. The implications of his hypothesis are quite helpful in thinking through how and why we need to think about investing in a totally different way in 2007 (and beyond).
His argument, based on neuroeconomics, is that human beings are simply not hard-wired to be good investors. We think with our heart and we are not always (perhaps never) rational. He writes: “The brain is not an optimal tool for making financial decisions. The part of our brain that tells us to act like rational investors tends to be completely overtaken by much more powerful emotional impulses—impulses that make us human.”
So, what are the implications for these emergent Social Stock Exchanges? Perhaps what many of us have been calling “putting the heart into the financial” is what we’re after. Forget the attempt to overlay sophisticated technical analysis onto the work of social purpose businesses; forget the need to identify the patterns that will yield the highest margin of return. Instead: let’s turn to the irrational—the messiness of the stories that one tells about the efforts and work—and try to make some sense out of that.
As my friend Kevin Jones has said a thousand times: “Trying to compress our value into spreadsheet thinking is reducing their inherent value. We are learning to tell a story that uses spreadsheet thinking, that is clearheaded as investing, while being as warmhearted as giving.”
The twenty-year anniversary of “Black Monday” just reminded me to stop thinking “rationally” and start feeling “irrationally.”
kevindjones said,
October 21, 2007 at 6:21 am
I bought a business journal the week before the 87 crash. i was scared; we had three stronger competitors and the publication i bought had failed five times.. but we were dominant in our market and our competitors out of business within three years.. and the crash… it faded away….