I was a bit late but I definitely made a point to binge-watch ‘Squid games’!
And it was mind-blowing!
Especially when the character of X said, “You are allowed to move forward when ‘it’ shouts out, ‘Green Light’ stop when ‘it’ shouts ‘Red Light.’ If your movement is detected afterwards, you will be eliminated”!
It then struck me that; this is exactly what happened to an investor in the stock market.
The rule for the stock market says, “You are allowed to buy stocks when ‘it’ shouts out, ‘Green Light’ sell when ‘it’ shouts ‘Red Light.’”!, but 99% of the investors/traders make the mistake of buying stocks when the market turns ‘Red’.
Which is definitely an alarming call!
What caught my eyes, is the way, humans bring emotions and they think ‘emotions could save them’ Traders/Investors in the market have a striking resemblance from the emotional perspective.
They think we can become the other person by simply enacting their moves.
Market participants follow the same trend of following a successful investors strategy without realising that their technical parameters are different than that of a successful investor.
The plot of the series starts with a random guy stimulating curiosity by card flipping.
Where he’d slap the player if he wins, and pay $100 if he loses.
Here the He the guy actually ends up paying the players.
Then, players are taken to a remote island where they have no clue what is inviting death in the form of a game they’ll play, tied with hopes of potentially winning a lottery.
What were they thinking?
There would be no denying the fact if we say the stock market is a ‘game’.
Market participants enter this game arena only based on curiosity!
They are not aware of what game they’re playing, and what rules should be actively looked upon.
The ‘subway guy’ character of invoking curiosity are the people surrounding us in the form of relatives, neighbours, friends etc.
Based on their so-called ‘successful trading/investing’ stories we are dragged into the stock market
People try to duplicate their portfolios by buying stocks in a similar manner to their friends and acquaintances without doing any due diligence.
When the stocks you bought favours your portfolio, you feel blessed and say you are lucky!
But if a similar situation continues it’s just gambling!
This is because ‘this feeling of lucky’ makes you overconfident and one goes into attribution bias.
Investing and Overconfidence is a bad combination!
It instils excessive trust in the investor’s decisions which becomes a plan gamble eroding the cognitive sprits.
This leads to overtrading and eroding the capital.
Overconfident traders neglect all analysis and forget about diversification.
They hardly listen to other people, and tend to choose the stocks they ‘start falling in love with’.
Such biased nature is because people find reasons for their own and others’ behaviours.
So when they’re in profit, they think that it’s all thanks to their amazing prediction.
When they’re at a loss, it’s because the market was in an unfavourable situation, or simply because they were unlucky.
Essentially, it’s pacifying oneself irrespective of the situation.
Herd Mentality
Herd Mentality is accurately reflected in Squid Game.
When players play ‘Red Light Green Light’, they are shocked to see other players get massacred.
After the game is over, they later vote whether they want to continue playing the game or not.
The surviving players fall into the trap of overconfidence.
The bet is, one of the last people surviving out of 456 people wins and claims the prize money.
Mathematically, every player has a 0.22% chance of survival, which is very low.
Blindfolded with overconfidence, they start thinking that ‘I have been chosen’ and that if I can flip cards easily this should be just as easy.
Therefore, according to them, this game should be an easy win.
Lotteries work in the same way, in which people bet on a probable cause that is close to impossible.
Sadly, most people approach investing like gambling.
Herd mentality is when people follow the actions and behaviours of whom they think is their leader in the groups.
And psychologically they are forced to do because they think it is the only way of survival and there is no other option better than this.
The same psychological characteristics is seen in a retail trader/investor who tries to mimic an influential/successful trader/investor.
Instead of trading based on their own trading rules, strategies, and analyses, they simply follow the actions of such people because they somehow know they couldn’t be mistaken.
These are the people who end up panic trading, and falling victim to scam schemes claiming quick money.
Conclusion
More than the actual analysis, psychological phenomena play a vital role in the right decisions for a market participant.
One wrong step, making the wrong decisions indicates that we lose money.
Just like how most people in the Squid Game end up dying, there are many other people who entered the market with dreams of becoming a millionaire, only to lose everything.
But unlike the Squid Game, the financial markets are real, it’s not a winner-takes-all.
If you can understand the characteristics and rules of each market, and do your HOMEWORK you definitely excel strategically.
The point is parameters are the same, perhaps universal, but the approach and attitude vary.
As an investor, I would say that fundamental or technical or quantitative knowledge accounts for less than 5% of what it takes to be successful.
It’s more about getting a grip on your mental and emotional biases and controlling them in a way that might not affect your hard-earned money.