Jim Cramer walked onto television and explained that when oil prices go up, oil-related stocks also go up. He called this a "Pavlovian trade." Pavlov trained dogs to salivate at the sound of a bell. Cramer trained investors to buy the same seven ticker symbols every time crude moves three percent.
The comparison fails immediately. Pavlov's dogs received food. CNBC viewers receive the opportunity to chase momentum at the exact moment when everyone else already finished buying.
Cramer says investors "gravitate toward a familiar group of stocks" when oil spikes. Gravitate. As if retail traders conducted independent analysis and arrived at the same conclusion through rigorous study. They didn't gravitate. They panic-scrolled their brokerage app at 9:47 AM and bought whatever green ticker had the word "Energy" in the description.
The Pavlovian metaphor suggests conditioning through repetition. Fair enough. Investors have been conditioned to believe that watching someone yell about sector rotation constitutes research. They have been conditioned to think that buying after the move already happened counts as strategy. They have been conditioned to lose money in the exact same way every single quarter and then tune in again next week for more conditioning.
Pavlov eventually stopped ringing the bell. The dogs stopped salivating. The reflex extinguished itself when the stimulus disappeared. Cramer has been ringing this particular bell since oil was forty dollars a barrel and also when it was a hundred and also when it briefly went negative and destroyed an entire generation of USO call holders. The bell never stops. The investors never stop salivating.
At no point did Cramer mention that these "familiar stocks" might already reflect the oil spike in their current price. At no point did anyone ask why buying something after it moved constitutes actionable intelligence. The segment aired. The stocks got mentioned. Somewhere in America, a man with four thousand dollars in Robinhood just went all-in on XLE at the top.
Pavlov's dogs couldn't trade options.
Photo by Maxim Hopman on Unsplash
Leave a Comment