What is Joe Six Pack going to do?

Its my opinion that Joe believes the market goes up and the market goes down. And its way too complicated and far too manipulated for him to bother figuring out.

He thinks…..

The stock market gains an average of 10% in value over time.

If he adds a little each paycheck, on the 15th and 30th he is “dollar cost averaging” and he will smooth out the volatility. So just as long as he sticks to the “Plan” his statement will show gains over time. All those investment books saying the same thing must be right….right?

He is not about to freak out on sharp declines by calling his broker and shouting “SELL EVERYTHING”. Why? Because he will leave the market timing to Wall Street. If he wasn’t smart enough to know that going into March 2009 he certainly learned his lesson the rest of the year.

And look at the last decline how it snapped right back. He says: “Those bastard Algo traders! They are manipulating this market. As long as I buy good American companies they will do well. America is the greatest country in the world so it is guaranteed that my stocks in Blue Chip America will always gain value….over time. And I am in it for the long haul…God Bless America”

He then remembers to order that oil pan gasket for that transmission in the bathtub (you need to read Richard Maybury, which I highly recommend, to get that joke)

The problem with Joe is he only knows what he has experienced. He never opened a history book, or if he did, he only read the books provided in public schools which tell a one sided, partial story

Joe experienced 1987. No big deal, the market zoomed off to crazy highs and rewarded those who held stock.

Joe experienced the greatest bull market in history through the 1990’s. Everything goes up especially if its a blue chip.

Joe experienced the pain in dabbling in biotech stocks and dotcoms.

Joe experienced 1999-2003 and then witnessed new highs; It pays to hang tight. Right?

What’s Joe going to do now?….. What’s Joe going to do when we break new lows?

Figure out what Joe is going to do and you can more accurately predict market behavior. This is part of Elliot Wave theory. Bob Prechter had a good description of the emotion that makes up wave 2 and wave 3, what we a probably in now on a very large (but not super cycle but big) degree. I just cant find his quote, but its based on how all humans act and react…pain (fear) and hope (pleasure).

I’m going way out here but…..

Religion is popular because it plays on these two emotions. Very simply put: early on, man (and woman) were fearful of lightning, thunder, wind etc so they prayed. The act of praying triggers relief of the stress of fear. They felt better (pleasure) after praying intently so they kept doing it. Eventually they figured out that the weather was not controlled by Gods and should not be “feared” but should be “understood”. Still, praying offered pleasure (in the way of stress relief) so they switched to praying to a God as we still do today.

This is simply how humans work, like it or not, and understanding how humans work is the key to understanding and predicting how markets works. The markets are made up of Joes (and fund managers). I know several fund managers and more than a few are on par intellectually with Joe.

Joe will eventually feel pain. He will realize that the market stopped going up. He will recall 1999-2003 and 2008-2009, still fresh in his memory. He will look at his 401K statement with performance in brackets. He will long for the feeling of pleasure just seeing a statement that didn’t show a loss. He will feel the pain knowing that his retirement years, as a baby boomer, are close by.

He will then sell. And he will sell everything. It won’t be the big funds, these managers are just trying to stay par with the S&P. They aren’t trying to take big “short” risk to show huge profits. Its more popular to be in bonds then to be “short” when your managing the Teachers Union’s account.

So when will Joe sell?

The market has been looking to break last few days. Today we saw more buy Paper than we saw in a week. So we may not get the break I was expecting on Monday. Still the market is weak and will react violently to any bad news. If terrorist weren’t complete idiots (I am sure glad they are) they would pick now as a time to strike. They would do more damage to the financial markets with a single car bomb in Times Square now than any other time.

Still, if an event created a hard break Joe won’t sell. He hasn’t seen enough losing statements yet. Wave 3 may very likely turn out to be a slow grinding decline as statements show up in the mail and Joe’s pleasure and hope turns to pain and fear.

Just for the record I love America. I have full size replicas of the Declaration of Independence, The Constitution and the Bill of Rights hanging on the walls in my office. I look at them often and wish our political leaders believed in them as much as our founding fathers did. They will again one day………… after a lot of pain.


Tim Mack


"A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government." - Thomas Jefferson