In the wake of a relatively meager 10% sell-off in the stock market we’re seeing the old financial “blame game” play out all over the place. Here’s an article blaming inflation. Here’s an article blaming machines. And you know, there’s probably a shred of truth to all of these articles, but I hate this idea that there’s an antagonist and protagonist in this story. The market is more complex than that.

It all kind of reminds me of the financial crisis. The financial crisis blame game still plays out all the time. It makes sense, I guess, we want to know whodunit because we want to be able to stop the problem in the future. The problem is, the financial crisis was largely psychological and there were lots of parties to blame. Homeowners got greedy and thought homes couldn’t lose value. Banks loosened standards making many of the same assumptions. Investment banks leveraged it all up thinking they’d discovered a new low risk way to securitize risky assets into safe assets. And the government probably had a hand in a lot of it as well because politicians mostly sell seemingly helpful ideas and ideologies to overly emotional and biased voters. The blame can be spread far and wide for the crisis, but at the end of the day it was mostly a bunch of overly emotional, sometimes greedy, sometimes fearful human beings who did things that seemed rational and then corrected it later when it was discovered to be less rational than they thought.

Stock market sell-offs aren’t that different. Stocks rise in value for seemingly rational reasons. The machines do lots of buying. Some people think inflation is going to rise and fall so they decide to buy stocks. Some people think growth is going to be really high so they buy stocks. Some people slept great last night so they decided to buy some stocks. I didn’t step in dog poop this morning so I will buy some stocks. You get the point. There are lots of rational and irrational reasons why the markets might move on any given day. In the long-term the moves are largely correlated to the very real trends in dividends and earnings, but that third factor, multiples, are basically just how emotional people feel. No one really knows why multiples expand and contract. They just do. Just like I don’t know why I am in a better mood than I was yesterday.