During their latest episode of the VALUE: After Hours Podcast, Rotonti, Taylor, and Carlisle discuss What Happens To You Physically During A Market Crash. Here’s an excerpt from the episode:
Jake: Yeah, just stop. I thought this would be interesting to talk about what actually happens inside your body during a market crash. At some point, we’re all going to have a position or an entire portfolio that really moves against us, and we’ll wake up and we’ll see this ocean of red, and we’ll feel this fear of loss, and it’ll be very visceral for us. You have to remember that the typical human response of a panic is usually to sell, and that’s almost always the wrong thing to be doing at that point. The problem is that our DNA hasn’t had time really to evolve to match in the last 10,000 years of, let’s call it, agriculture and civilization with the millions of years before that created us. And so, our wiring is often in conflict with our modern environment. We have to keep that in mind.
So, I thought if I could explain what’s happening inside your body. When you feel your own blood in the streets, it might help you to slow down, stay on top of your reactions, and maybe we’ll have some things at the end of this that you can do now before there’s a crash to help prepare your body’s reaction, which gets into the vagal nerve that Toby was stepping all over. So, I’m going to be drawing some inspiration from this really terrific book called The Hour Between Dog and Wolf by John Coates. Interesting background on him. He was a trader on Wall Street for a long time. He then moved into neuroscience, I think, after he’d made enough money, and then has spent the last couple of decades doing research that marries the two of those together. I think it came out in 2013-ish, and it was actually recommended to me by a friend of the show, Dan McMurtrie, and he was very right. It’s a terrific read.
So, let’s start with like a little biological review just to help us all talk on the same terms here. A hormone is a chemical messenger that’s carried by the blood from one tissue to another, and there are dozens of them inside your body. What they do is they help us regulate our body to maintain this tight band of homeostasis for our blood sugar, and heart rate, and whether you’re hungry or not, or thirsty, a million different things that are happening in your body. And steroids are a particular class of hormone that have potent, widespread effects. There are three main groups of steroids. There’s testosterone, estrogen, and cortisol, okay?
So, almost every single cell in your body and your brain has receptors for steroid hormones. If steroids get released into your bloodstream, they have widespread effects that impact your growth, your shape, your metabolism, your immunity, your blood chemistry, your mood, your memory. They’re very broad, sweeping impacts. Steroids evolved basically to coordinate your body, and your brain, and your behavior during important archetypal reactions and situations like fighting, fleeing, feeding, hunting, another F word, we’ll call mating, and struggling for status. So, these very important things that help you to propagate into the next generation. Hormones are helping you coordinate a reaction to this.
So, what happens when you experience something threatening, like, maybe you hear rustling in the leaves and maybe you think it’s a bear, okay? Or, perhaps, when you log in and you see huge losses on your screen. The first response happens via an electrical impulse from your amygdala, and it registers the danger and then passes it on as a warning to other parts of your brain. This happens in a matter of milliseconds, okay? It’s instantaneous, almost. Secondly, the amygdala passes an electrical signal to the visceral organs in your heart and your lungs to increase your heart rate, increase your respiratory rate, your blood pressure, your breathing, and it uses the vagus nerve to send that signal. We’ll get into more on that in a little bit, okay?
The next effect is you get a shot of adrenaline. This is that fast acting hormone that takes effect almost instantaneously within seconds. It has a relatively short blood half-life of two to three minutes. So, it’s a very quick response and then it dissipates pretty quickly, and it prepares you instantly for fight or flight. I think we all have heard this one. But what else is happening is also that your arteries are constricting in your skeletal muscle or, sorry, they’re dilating the other way around, and they’re forcing more blood to your major muscle groups to prepare your body for a physical response. There’s tiny arteries in your skin that actually constrict to help reduce bleeding, if you’re injured. This is what can give you that clammy feeling, okay? That’s what’s happening.
Blood vessels in your stomach also constrict, and this is what gives you that sense of butterflies in your stomach. Your skin can start to sweat right away. This is preparation for physical exertion to cool your body off. Your pupils dilate to let in extra light and more sensory input, and salivation stops to preserve water, which is that feeling that you can have a dry mouth when you’re afraid. So, here’s all these things that are happening to you, okay? These unpleasant feelings from a stress are all your body’s way of preparing you for really the need to move and respond quickly, so that nervous stomach, higher blood pressure, elevated glucose, which is a big part of it, anxiety, these are your gastrointestinal, cardiovascular, metabolic, and really attentional preparation for impending efforts to save your life.
But what if the danger is a little bit more prolonged? It takes longer than the response of what adrenaline would impact. This is where we have another system, that’s called cortisol. This is really for that like, what if you’re being stalked by a lion for multiple hours? This is what cortisol is for. Adrenaline doesn’t last that long. So, cortisol orders basically all your long-term and metabolically expensive functions in the body like, digestion, reproduction, growth, storage of energy, immune functionality to be shut down. We’re in war mode right now. It floods your system with glucose, so that you have instant available ready energy. It effectively retools your body from leisure and consumption goods in favor of war material. It organizes really a coherent long-term physical defense to danger.
But this all comes with a cost. It shuts down the reproduction of growth hormones, it blocks the effects of testosterone and insulin, which are very important for your body over the long-term, because these lead to loss of muscle mass, weight gain from unused glucose that gets turned into fat, loss of restorative sleep. It’s basically strip mining your body for nutrients, because it’s a short-term response to help you get to the next round of evolution. It leads to hypertension, increased incidence of cardiovascular disease, and cancer. Even cortisol actually fertilizes the neurons in your amygdala, which is where fear response is happening. It’s like miracle growth for your amygdala as far as the neurons branching, which then leads you to thinking more emotional, less factual, and impairing your ability to engage in rational analysis. So, your brain is literally being shunted away from that system two, thinking that you should probably be using in these time periods.
In fact, they’ve done some studies where your neocortex effectively gets shut down and you’re running almost on impulse and emotion, which is obviously not where you want to be. Maybe that was good for survival in the savannah, but it’s not great for mining your portfolio. You’ll start to see patterns in randomness, and you can become actually irrationally risk averse. Price insensitive at that point when maybe now is the perfect time to be buying, but we’re all afraid because of what’s been happening to us.
So, let’s go back to this vagus nerve. That’s vagus, not as in Las Vegas. It’s vagus, V-A-G-U-S, in case you want to look this up later. There’s something really interesting that’s happening there where your resting heart rate is actually not your heart’s default setting. The default rate is considerably faster. The vagus nerve acts as basically like a break on the heart and lungs to keep it at this slower idle. When you’re jarred out of a relaxed state by some emergency, your fight or flight nervous system takes over and it raises your heart rate. But there’s an intermediate level of activation needed for minor stressors, which is controlled by that vagus nerve. So, this lets us save the big response of a full cortisol, a full adrenaline response for this real trouble. For these minor stressors, your vagus nerve can actually modulate to allow your heart to speed up or slow down, which it saves a lot of the wear and tear.
So, having good vagal tone, it’s called, which means like a well-functioning vagal nerve, makes your body better at controlling this regulation of your heart and your lungs, so that there’s less release of cortisol, less adrenaline, and you merely release the vagal brake a little bit to get the response that you need, and there’s less wear and tear. So, there are ways to improve your vagal tone. This is what we talked about trying to work on things before you’re in the middle of the shit hitting the fan, okay? So, here are some tips for that. First of all, like heart rate variability is a good proxy for vagal tones. So, if you’re using almost every single wearable that you have now has heart rate variability built into it, start keeping track of that. Like, see how it’s changing based on sleep, exercise, the various inputs that you have in trying to promote your health.
Yoga, meditation, breathing exercises, all been shown to have positive impacts on vagal tone. Cold plunge, actually, and even splashing cold water on your face when you’re in that panic state will activate your vagus nerve and actually calm you down somewhat. Avoiding loneliness, so, like, community lowers that stress response, increases vagal tone. Intermittent fasting does this as well. And then frequent movement. So, exercising when you’re stressed is super important, because you’re literally clearing out a lot of these chemicals from your system by getting your blood flow going. This makes perfect sense, because your body’s preparing for a physical action in this. That’s what we evolved to do.
But now, today, when you get into that fight or flight stress– and then you’re sitting in a chair staring at a screen, this is a terrible mismatch in your environment and your evolution. So, you have to do something to get that closer aligned. I think that’s regular exercise, especially when you’re stressed. Then just time in nature and resting and not just being chronically stressed and working constantly is another way. So, hopefully, maybe with a little bit more understanding of what’s happening inside of you, we can engage more neocortex to short circuit some of this stuff and even better do some prep before we get into the situation where we’re really scared and the shit hits the fan. So, hopefully, that’s our public service announcement for the week.
Tobias: That’s good, JT. That’ll be good for the crash that when it finally gets here. I’ll go back to this episode.
Jake: Yeah. Let’s listen to this one again. See how it ages.
Tobias: When you turn on, you see all the red in the morning just going, do some squats– [crosstalk]
Jake: Meditate. Yeah, go for run some sprints, go wrestle a bear. I don’t know. [laughs]
John: Jump in a cold dip. I love those veggies. On a personal level, I know personally I’m a better investor when I take care of my body, when I get enough sleep, when I get enough movement and exercise. In fact, some of my best ideas I’ve gotten on hikes or actually on a long cruise ski run, just cruising, random ideas will pop in my head from an investing standpoint. And then taking it away from me, personally, I do think there is a link between health and longevity and investing, because if Buffett, I don’t know, he’s 90 or something, 92. Munger is almost 100. Buffett, 90% of his wealth came after the age of 65.
So, if you do want to let your portfolio compound for as long as it can, then you want to let your body and your health compound at a high rate as well. And so, I do think that there’s a close link between health and longevity, wellness in your portfolio.
Absolutely, the concept of compounding doesn’t just apply to financial investments; it extends to our overall well-being too. Just as we aim to let our portfolios grow, it’s vital to nurture our bodies and health for long-lasting vitality. Many individuals are exploring holistic approaches to enhance their wellness journey, including the use of cbd vape juice. Recognized for its potential therapeutic benefits, CBD has become a popular choice among those seeking relaxation and stress relief. By incorporating such natural supplements into our self-care routines, we align our efforts towards a healthier and more balanced life, enhancing the synergy between our financial stability and overall well-being.
Jake: It’s my only chance of catching Buffett is I got to live to, like, 130.
Tobias: He’s made it tough, dude. He’s made it really– [crosstalk]
Jake: I’ve got to get– [crosstalk] I’ll never get his rate of return, but if I can add a couple more of those doubles on the back end that he didn’t get-
John: On the back end.
Jake: -that’s the only chance you got.
Tobias: The Fed could print us there. The Fed could get us there.
Jake: How [crosstalk] Toby? Come on.
John: It could. They were on their way. They were on their way.
Tobias: You would be a billionaire, but– [crosstalk] a cup of coffee will be a millionaire.
Jake: Oh, yeah. [laughs]
Tobias: The name of that book was– Just one more time, JT.
Jake: The Hour Between Dog and Wolf.
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