AN MIT PROFESSOR named Edward Lorenz published a paper in 1972 titled Predictability: Does the Flap of a Butterfly’s Wings in Brazil Set off a Tornado in Texas?

It was a catchy title. Though Lorenz didn’t mean it literally, the basic idea was that events in the physical world are highly interconnected—more so than they might appear.

The world of investments is similarly interconnected in ways that aren’t always visible. Just like the weather,

THE ECONOMY IS recovering and the stock market has recovered. The pandemic isn’t over, but it seems we’re past the worst, at least in the U.S. Feeling better? Take a deep breath, take a step back—and think about the past two decades.
Since early 2000, we’ve had three major stock market declines, or roughly one every decade:

In 2000-02, the S&P 500 tumbled 49%, excluding dividends. The first leg down was triggered by the bursting of the dot-com bubble.

IN RECENT MONTHS, there’s been a lot of handwringing about the stock market. Thankfully, we seem to be on the back end of the pandemic, but things remain far from perfect in the economy. Millions are still unemployed. And the government has had to spend trillions to get us through, adding to a federal debt that was already enormous.

Today, the economy is far more fragile than it was pre-COVID. And yet the stock market just keeps cruising to new all-time highs.

IS THIS A TIME TO be fearful? In Berkshire Hathaway’s 1986 annual report, Warren Buffett wrote, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Make no mistake: There’s plenty of greed on display right now, whether it’s bitcoin, nonfungible tokens, Robinhood traders, GameStop or special purpose acquisition companies. All of this has some observers talking of a market bubble. Indeed, I suspect much of this nonsense “will end in tears,” a phrase my mother often used when trying to control her four rambunctious children.