Investing can be Hazardous to your Health
October is Mental Health Awareness Month. It is particularly apt this year because 2020 has been absolutely terrible for mental health sufferers. The lock downs and circuit breakers meant that those suffering from mental health issues could not get their treatment initially. And then there was the isolation, lack of social support, and unfamiliar ways of working and living. But while there are anecdotes about people who lost their life savings or worse, there is little attention on those who invest in these unusual times. We often assume that these investors and traders are making the most out of the opportunity presented by the bad situation. Too often, we fail to consider that they may be suffering as well, as investing and trading can be hazardous to our mental health!
Investing and trading can be hazardous for your mental health
How does Investing and Trading affect Mental Health?
To get some sense of this issue, let’s look at an interesting paper published a few years ago. And in the Journal of Finance, no less! Joseph Engelberg and Christopher Parsons looked at the impact of the 1987 Black Monday crash on hospital admissions. Looking across all hospitals in California, USA, they found a sharp increase in the number of hospital admission on the 19th of October 1987. Which was the exact day when the Dow Jones fell 22.6% in a single day!
Abnormal Hospital Admissions in California in October 1987
To see how sharp the fall in the US stock market was on Black Monday, look at the chart below. The crash is eerily reminiscent of the sharp drop in the financial markets earlier this year. The only difference was that it wasn’t accompanied by an equally sharp rebound, but instead, took years to regain its former levels.
Black Monday October 19th, 1987
Coming back to hospital admissions, Engelberg and Parsons also found that hospital admissions in California between 1983 and 2011 for mental disorders was significantly associated with a negative return in the financial markets. This was especially so for those days when the returns were in the bottom 20th percentile of all returns:
Hospital admissions in California for Psychological Conditions 1983 – 2011
All in, this paints a startling picture of how investing and trading can be hazardous for our mental health!
Investing and Trading during Covid-19 and Mental Health
Remember, the findings by described above were specifically for Black Monday in 1987 (increase in hospital admissions), and for the period 1983 to 2011 (correlation between market returns and psychological disorders). Which is the period when investing and trading in the stock market was far less prevalent than it is today, due to much higher brokerage costs, lack of access to information, and of course much lesser access to online trading. Also, while day traders already existed back during the Dot-Com bubble, it is unlikely that investing and trading attracted so many younger people as compared to the situation today. The digital-native Millennials of today are readily signing up and opening accounts on a slew of low or no-commission online brokerages, like Robin Hood, eToro, and Tiger.
Why would this be important? It is because mental health issues tend to play a larger part in the health of younger people. In the Burden of Disease report for Singapore 2017, mental disorders account for a high proportion of the Years of Life with Disability (YLDs) for those who are younger.
Proportion of Total YLDs caused by Mental Disorders for Males and Females, Singapore 2017
So, the inconvenient truth here is this. It is the young, who have the greatest susceptibility to mental disorders, also have the greatest ease of access to investing and trading during Covid-19.
Watch for the Mental Health of Those Around Us!
There is much we do not know about mental disorders, mental health and mental well being. But we all know the consequences, occasionally tragic, of mental disorders. What we also know now, is that mental disorders can be highly correlated with downturns in the financial markets. And this is not helped at all by the easy access which we can trade and invest these markets nowadays.
And we also know that mental disorders are particularly prevalent amongst the young, who may have the least amount of resources on hand to buffer themselves over a long market downturn, even while they are being told relentlessly to invest for their retirement while young and when they have a longer tie horizon. Nor is this helped by the constant bombardment of online advertisements purporting to teach us how to trade and invest with a minimal amount of money, and yet be able to reap extraordinary returns.
So, in short:
- For those of us who are young: look before you leap into the world of financial markets, trading and investments
- For those of us who are older and more jaded: help those who are planning to invest and trade to consider how they can do so in a safer and less stressful way.
And look out for the mental health of one another.