Certainly, the probability of individual injury in a terrorist attack appears minimal; but, I'm not sure that's the point. 9/11 touched a lot of folks big time.
If we consider the impact of 9/11 on the market, let’s recognize the serious financial impact upon investors who were gleefully "hang-ten" on the wave of a bubble.
What they learn will not be associated with a reckless tulip-type investing style; rather, money loss should link to terrorism (sHr).
This money loss/gain serves as reinforcement to habit formation – and can be either negative (loss) or positive (gain) depending upon your market position.
Continuing the behavioral line of thought, subsequent terrorist attacks should have two effects. First, as negative reinforcement they should strengthen a market avoidance response for the average surfing Bull. Second, as positive reinforcement to Bears, it should encourage continued short selling.
Both behaviors would increase probability of a down market. Either way you slice it, the result should be a longer and lengthier downturns -- from a behavioral perspective at least. Remember negative reinforcement establishes a habit pattern that is far more difficult to extinguish that a habit established by positive reinforcement. Therefore, linked to this should be a significant reduction in equity market participation. I would think a wise investor might shift from the techs to gold, possibly long bonds, and/or currency exchange. While the average small investor will store his remaining funds under his mattress, not in the market.
Ted |
