What does SVB's demise tell us about our behaviour during market shocks?

Dealing with investment risk

Before you stop reading, I promise this is not another SVB explainer. While (too) much ink has been spilled detailing the bank’s failure; it is often useful to take a step back from tumultuous market events and consider our own behaviour. What happens to us during such stressful periods and what does it tell us about how we deal with investment risk?

Our time horizons contract - The key danger for investors during periods of market stress is the contraction of our time horizons. Even if we have a long-term orientation, we quickly start to worry about the immediate future. All our carefully considered behavioural plans can be torn asunder, as we seek to remove the anxiety we are feeling right now. We focus on one thing - It is not just that our time horizons contract, but our focus narrows. The attention of virtually all investors turns to one thing, typically at the expense of issues far more important to our long-term fortunes. W...