The Scapegoat Mechanism
Controlling Emotions in Times of Instability
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A month ago, we were vacationing in Florida with another couple and their 3 kids. Every morning we would wake up early, eat breakfast, go to the ocean or pool, then head home to take a nap and hang out for the rest of the day. Every night, the adults would stay up late to have a few drinks and catch up.
The first night, my friend and I stayed up late and we started discussing investments and then out of the blue my friend said: Yeah, I am getting killed on that stock XYZ you recommended to me.
I honestly didn't remember "recommending" anything to him. We hadn't seen each other for at least 2 years and rarely text, so I figured I must have mentioned it to him flippantly during the last vacation while we were playing golf.
My friend didn't mean what he said in an accusatory way. He was just making a statement and said he took full responsibility for adding it to his portfolio (this rarely happens). I had mentioned to him it wasn't doing great in my portfolio either as I had been holding it for years and watched the erasure of gains over the past 6-12 months.
That conversation we had on the first night has stuck with me for a few reasons.
First off, my immediate reaction was a sense of remorse and shame. I would have never mentioned the stock if I hadn't believed in it. The fact is, I still do believe in it. But my time horizon is forever. What is his time horizon and risk profile?
Secondly, it brought back memories of other times I've nonchalantly mentioned stocks or strategies to friends in passing or even on Twitter with a large following, not fully realizing others may have piggybacked the investment, setting me up for future criticism.
Thirdly, it solidified in my mind that it's against our human nature to take accountability for the wrongs we've committed and instead project our worst fears onto a scapegoat.
This scapegoat mechanism tends to happen in times of instability. The markets have been unstable since the start of the year, really since the start of the pandemic. Who should we blame? The Fed? Trump? Biden? The CDC? Putin? Ramp Capital? There's just too many easy targets to choose from. Make sure you're not looking in the mirror when you pick your target.
If you want to see this happening in real time on Twitter, just look at how the mob has turned on Jim Cramer and singled him out. You've probably recently noticed the most low brow engagement technique on Twitter and it doesn't involve writing Wikipedia threads. The technique is to quote tweet or reply to Cramer and say something snarky about doing the opposite of everything he says. They're winning easy internet points and at the same time deflecting the blame for their own problems.
As Luke Burgis eloquently puts it: We can't predict when the wisdom of the crowd becomes the violence of the mob.
This isn't about defending Cramer, but rather highlighting him as the most recent scapegoat for the market's misfortunes. Cramer has an impossible job. He goes on CNBC nearly every day and has to provide commentary on hundreds of stocks every week. He's an easy target with an extreme personality that draws viewers in. While he may not know it, all scapegoats actually have the power to unite people and defuse the mimetic conflict.
The mimetic behavior and scapegoat mechanism surrounding Cramer can be compared to a biblical story of a stoning event that never happened because Jesus intervened and said "Let anyone among you who is without sin be the first to throw a stone." Except in this scenario, the stones are tweets. Without the mimetic model of the first viral tweet and dopamine hits of the engagement that follows, there's a chance Cramer wouldn't currently be labeled the market scapegoat. But, alas, mimetic contagion has already taken hold.
Unfortunately, nobody is safe from becoming a scapegoat but it is possible to take steps to minimize the impact once you realize it is happening to you or someone else.
One simple way is to just stop talking about your investments around family or friends or your social media channels. I've seen it first hand, people will only remind you of the losers, never giving congratulations for the 10x winners.
Or just stop giving advice, period. You shouldn't be giving any type of investment "advice" anyways unless you're a registered investment advisor. Everyone’s personal finance situation and risk profile is unique and should be treated as such when constructing a portfolio.
But we all know how this works. You come home for Thanksgiving to visit with family or you're on a bachelor party with some friends and somehow the topic gets brought up. You're the expert and also the potential scapegoat. People crave guidance from experts but also aren't willing to put in the work themselves.
An alternative way to approach these situations is to say something along the lines of: I bought XYZ stock because of these reasons. There's a chance this investment doesn't work out for these reasons and you will lose all of your money. Do whatever you want. This is not investment advice. Hire a financial advisor you cheap ass. Blah blah blah.
At the end of the day, unintelligent people always look for a scapegoat.
Intelligent people are hungry for continual guidance and mentorship, take responsibility for their actions, and can control their emotions in times of instability.