I’m Back, Baby!

Garrott BoysHere's a picture of me and Matt Jr to trick you into reading a post about price anchoring.

It’s been a while since I’ve posted, but that’s because I’ve been busy with a new baby!  Baby and Mom are happy and healthy.  This is a pretty big difference from our first child who spent a ton of time in the hospital during his first two years.

There’s a pretty big gap between our two kids (almost 8 years!) so a lot of people are asking us if we are ready to go through all the newborn stuff again.  Are we ready?  We’ve been playing the child-raising game on hard mode for the past 8 years.  We are reveling in changing diapers, feeding, and just holding the newest member of our family.

Our child-raising experience is anchored in years of NICU units, dialysis treatments, and navigating various hardware that came with having a baby with ARPKD.  While it’s not exactly a vacation to wake up at 2 in the morning to figure out why our new baby is crying, it’s a ton easier than having to figure out why a dialysis pump is alarming.


This mental anchoring occurs all over the place – restaurant menus, negotiations of all kinds, and yes even how we think about the stock market.  For a long time, a 100 point movement in the Dow Jones Industrial Average was a huge event.  Today, 100 points is less than half of a percent (not a big move).  However, many news outlets still report daily changes (especially downward movements) in points instead of percentages.  We hear that the Dow was down 100 points and think something really bad must have happened when really it was a pretty typical day’s movement.

I don’t know when, but some day the stock market will drop 20% from its high.  How will people think about this?  Will they be happy that they are up huge from the market lows in 2009 or even the previous market highs in 2007?  Will they welcome the opportunity to rebalance or harvest losses?  No, because we’re irrational beings, we will be worried and susceptible to panic-inducing chyrons on CNBC.  Keeping a long-term mindset is difficult because we tend to anchor to insignificant data points, especially round numbers, whether that’s a point total on an index, a dollar amount in a 401(k), or supposed home value on Zillow.

Along these lines, check out what Michael Batnick had to write about getting back to all-time highs.