The stock market is a battleground where victories and defeats are determined by numbers rather than weapons. Between the peaks and troughs of fluctuating graphs lies the blood (losses) shed by investors. In this daily, hourly, minute-by-minute battle, retail investors, often referred to as 'ants,' are at a disadvantage. Lacking the information that institutional and foreign investors possess, they frequently become scapegoats.
For these retail investors, the past two months have been the worst battlefield in the history of the Korean stock market. It has been a period of unprecedented volatility. The index, which peaked at 9,114 points on June 22, plummeted to 5,993 points by July 30. In August, it showed signs of recovery, fluctuating between 6,700 and 6,900. During this time, the gap between the highest and lowest points of the KOSPI index reached 3,121 points, illustrating a dramatic swing in just two months.
The extent of this volatility is evident in the number of times market circuit breakers were triggered. From June 22 to August 21, circuit breakers were activated seven times, and sidecars were triggered 31 times, totaling 38 instances. For context, the highest annual activation of these mechanisms occurred during the 2008 global financial crisis, with only 26 instances that year, highlighting the extraordinary volatility of the current market.
Given such extreme fluctuations, it is understandable that retail investors have been left bewildered over the past two months. No one can confidently predict whether the index will rise again or continue to fall. This uncertainty leads people to rely on someone else's 'predictions.'
In chaotic times, prophecies abound. Historically, all prophetic texts emerged during periods of turmoil and uncertainty about the future. Many later proved to be misleading or even false prophets.
The situation surrounding our stock market in the past two months is no different. Amid unprecedented daily fluctuations of 5% to 10%, numerous 'prophets' from securities firms, investment banks, and government agencies have been making various predictions. These so-called 'experts' are not limited to the Yeouido financial district; on platforms like YouTube and social media, individuals claiming to be 'investment gurus' have urged retail investors to buy specific stocks. Including those known as 'finfluencers,' the number of unlicensed forecasters runs into the hundreds or thousands.
However, it is essential to think critically about these predictions. Many of them merely explain price movements that have already occurred. When stock prices rise, they provide reasons for the increase, and when they fall, they seek explanations for the decline. This often resembles post-event commentary rather than genuine forecasting.
Looking back just a few months, in May and June, most securities firms projected the KOSPI index would exceed 9,000 points by the end of the year. Some foreign investment banks even forecasted it could reach 12,000 points. Their reasoning was clear: the anticipated supercycle in memory semiconductors driven by the spread of artificial intelligence (AI) was expected to be stronger and longer-lasting than previously thought, fundamentally different from past semiconductor cycles.
However, following the market's sharp decline starting June 22, these forecasts changed. Analysts began to assert that the downturn was merely a 'short-term correction' or that the fundamentals remained strong enough for a rebound. They reiterated that the market had changed from the past. Yet, the market did not follow these predictions.
This brings to mind the warning from legendary investor Sir John Templeton, who stated, 'The four most dangerous words in investing are: This time it’s different.' He pointed out that during bull markets, greed can lead to overly optimistic future expectations, while in bear markets, fear can result in excessive pessimism. Ultimately, when the market undergoes drastic changes, people tend to find evidence to support the forecasts they wish to believe.
Of course, this does not mean that market forecasts are unnecessary. Analyzing the fundamentals of the economy and companies, as well as assessing future risks and opportunities, is a crucial part of investing. The issue arises when these analyses are treated as 'prophecies.' Just because a prediction turns out to be correct does not mean the person making it has accurately foreseen the market's future. One of many forecasts may align with reality after the fact. Predictions of '10,000 points' or 'the bottom is in' could ultimately be correct, but this is more likely a result of market movement than prophetic ability.
The stock market will continue to rise and fall. No one can consistently predict its direction. Especially when the market swings between extreme greed and fear, relying on expert forecasts for investment decisions becomes even riskier. Therefore, Templeton's warning remains relevant today. In bull markets, investors should be wary of predictions that 'this time it will rise endlessly,' and in bear markets, they should be cautious of fears that 'this time it will collapse forever.' What retail investors need now is not a prophet to predict the future, but a mindset prepared to endure regardless of the market's direction. This is the survival strategy in times of extreme volatility.
* This article has been translated by AI.
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