Investors Are The Moths, Markets Are The Flames

Why do investors incinerate themselves in the financial markets?

It’s not intentional. They’re wired to self-destruct for reasons beyond their control.

Look at the moth’s behavior. of moths, flying into the flames of lit candles.

Is this self-immolation a deliberate suicide over a lover’s quarrel?

Nope, Moths making burnt offerings of themselves exhibit complex reasons for their bizarre flight patterns.

Their actions are a by-product of something complicated.

Artificial light is a recent entry into the travel itinerary for flying insects.

Bugs use things like the sun and the moon to keep them on course. They rely on celestial objects to navigate the sky. This enables them to return home, using a certain angle to keep them on course.

Problems arise when things like candles appear in their field of vision.  The same angle for navigating by the stars causes them to fly into the flames and commit an apparent suicide.

Surprisingly, what they’re doing makes perfect sense.

According to Richard Dawkins:

We don’t notice the hundreds of moths silently and effectively steering by the moon or a bright star or even the glow from a distant city. We see only moths wheeling into your candle, and we ask the wrong question: Why are all these moths committing suicide? Instead, we should ask why they have nervous systems that steer by maintaining a fixed angle to light rays, a tactic that we notice only when it goes wrong. It never was right to call it a suicide. It is a misfiring byproduct of a normally useful compass. 

We should ask the same question when watching investors make burnt offerings of their portfolios.

Do they really want to commit financial suicide, or is this just a misfiring of a normally useful compass?

My colleague Barry Ritholtz is on to something.

In discussing family trauma and consequent attitude toward risk, he states:

Psychologists have long known that stressful early life family disruption has long-lasting effects on an individual’s personality. What is less well known is the impact those traumas have on risk-based decision-making later in life.

Trauma impacts the lives of many Americans. Forty percent of children experience a divorce. Five percent suffer the loss of a parent.

They grow up and invest in the market. Making risk decisions that seem illogical to the casual observer. Unbeknownst to critics, their troubled childhoods or some other trauma helped shape their asset allocation strategies.


Investors sell at market bottoms or keep their long-term investment funds in cash for reasons that go far beyond money management theories.

The problem magnifies when they don’t understand why.

Ritholtz goes on to say:

Learning about our cognitive operating system’s inherent biases and predilections is useful for investors. At the very least, it allows you to avoid some of the more obvious errors. It gets much trickier when an investor considers personal childhood traumas and other subjective events.

The next time you observe a moth self-immolate or an investor Napalm a financial plan during a market downturn, don’t jump to conclusions.

They’re using the right compass but for the wrong reasons.




This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.