Why do stocks always fall faster than they rise ?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
mffl
Posts: 199
Joined: Wed Dec 06, 2017 7:25 pm

Re: Why do stocks always fall faster than they rise ?

Post by mffl »

shess wrote: Sun Jun 20, 2021 1:18 am
Kookaburra wrote: Sun Jun 20, 2021 12:54 am Significant fear can occur quickly and snowball. Is there such a thing as rapid onset major optimism?
I mean, Gamestop and AMC. But that's not really broad-based.

Personally, I don't think it's all that surprising, many systems work this way. Increasing stock market value is akin to increasing organization in a system - it takes long sustained and intentional effort to get things more organized, but it takes little effort and no intention at all to disorganize things. Running around in a panic pretty much suffices. Part of this is that reducing entropy adds tension to the system, which is potential energy, and when that tension is unblocked the energy is unleashed, which breaks other bonds releasing more energy causing a chain reaction. It dampens when the average bond being broken doesn't release enough energy to break new bonds.
I think this is a great answer. It's a more expanded version of what I was going to say: "it's easier to destroy than it is to create". This fact is probably *why* humans instinctively treat fear as a greater motivator than greed; bad things can happen quickly with dramatic effect. Good things can usually be seen in advance, since there's a ton of work that people had to put in to accomplish the good things.

In the case of a single stock, perhaps you have closely held info about last quarter's profit that might surprise on the upside. But how does an index investor see a surprise to the upside like that? If COVID is what it takes to knock the market down 40%, what's the inverse of COVID -- and that happens suddenly without anyone seeing it coming so it isn't already priced in? I mean, economical fusion power, maybe? But it will have been 80-100 years in the making or whatever, with hints for decades along the way. Seems like most of the dramatic movement to the upside is generally correlated with finding out that an unknown bad is slightly less bad as it comes into clearer focus. Not that aliens landed and gave us superior technology overnight.
N.Y.Cab
Posts: 120
Joined: Wed Feb 07, 2018 8:46 pm

Re: Why do stocks always fall faster than they rise ?

Post by N.Y.Cab »

It’s fashionable to be late to a party and the traffic is always bad after a game.
User avatar
Leif
Posts: 3224
Joined: Wed Sep 19, 2007 4:15 pm

Re: Why do stocks always fall faster than they rise ?

Post by Leif »

If someone is shooting at you then you will immediately duck. Only once the shooting stops will you gradually raise your head.
sundevil_jay
Posts: 4
Joined: Thu May 28, 2020 7:10 pm

Re: Why do stocks always fall faster than they rise ?

Post by sundevil_jay »

I think it depends upon where you are in the market. if you are sitting at peak, of course fall is faster than rise as the rise is always against the peak at that moment. But if you are at the bottom, this would be completely reverse - remember April 2020?
Bagels
Posts: 23
Joined: Mon Apr 12, 2021 9:08 am

Re: Why do stocks always fall faster than they rise ?

Post by Bagels »

RubyTuesday wrote: Tue Jun 22, 2021 5:46 pm “Faster” is a measure of rate of change. The same rate of change (same speed) of recovery takes longer to recover than the loss took. It’s just exponential math.

Example… If a stock goes from 100 to 50 in a period (rate of 50% per 1 period decrease), the same rate (speed) of recovery requires 1.7 periods to recover. The same speed seems “slower” because it takes longer but it’s the same speed.
Isn’t something that takes longer by definition slower?
If you have ProtonMail Plus, you probably have access to ProtonDrive now. I never got an announcement, but it's there, in Beta.
Post Reply