About a month ago, in the early news stages of the Coronavirus, I called my wife asking her if she was going shopping. She happened to be at Costco (of all places!) and asked what I wanted. I asked her to get bottled water, toilet paper, and canned goods. The bottled water in stock was running low, and toilet paper was nowhere to be found! She, being the more rational one, asked me why we were trying to stock up on water (there’s no indication that the water supply will be contaminated by the Coronavirus) and toilet paper (we already had some, plus we have a bidet!). I literally said, “I don’t know, everyone keeps saying to buy water and toilet paper!”
The spread of COVID-19 is serious business. Following the national lockdown of India’s 1.3 billion residents, around 2.6 billion people (around ⅓ of the world’s population) are currently on some form of lockdown. Here in the US, “safer at home” standards have been implemented regionally by states, cities, and counties. Professional, college, and youth sports seasons have been cancelled. In most places, only “essential” businesses remain open. Schools and universities have shut down, and most have indicated that they will not return before the summer break.
As the initial news of outbreaks began to spread in various regions around the US, Americans fearful of mandatory, or even voluntary home quarantine, started stocking up on supplies that would be needed for their families to survive. People began hoarding bottled water, non-perishable foods, like canned or dry goods, disinfectant wipes and sprays, and… toilet paper.
Why toilet paper? Good question.
Some experts suggest that toilet paper exudes symbolism. It represents control at a time when many of us feel like things are out of our control. Others speculate that it’s the outsized shelf space that toilet paper takes up that has drawn inordinate attention. A common conclusion is that the TP hoarding is a byproduct of irrational herd mentality. Basically, TP FOMO (fear of missing out).
So, in my momentary toilet paper and bottled water frenzy, it appears that I acted irrationally, fueled by herd mentality.
The same thing seems to happen in periods of extreme market volatility. The sell-off that began on Monday, February 24, when the Dow Jones Industrial Index lost over a thousand points. In the weeks since that initial sell-off, there have been more days in which the Dow Jones lost 1,000 points in the month of March than in all of the last five years combined.
As stories of empty toilet paper shelves began to make the rounds on social media, those who had not yet rushed to Costco or Target to hoard their share of TP, felt compelled to make a TP run. Many, like yours truly, recognized the irrationality of the purchase, and even the potential negative impact of hoarding. Nonetheless, the image of empty shelves and the image of completely running out at home overrode rationality.
As the stock markets sell off, investors begin to feel fearful that the losses in their portfolio will continue. The first days of losses might be chalked up to normal volatility, or just the early irrational sellers. Same as the early images of shopping carts full of toilet paper. When markets continue to decline as they did through most of March, investors begin to succumb to their fear over rationality. Nobody wants to be the last one to Target to find that the person right before them took the last pack of toilet paper. The feeling in the market can be the same. Fearful investors want to “get out” before the proverbial shelves are empty.
Toilet paper will be restocked. There isn’t a “last” roll that you will miss out on. Similarly, investors selling stocks when they seem like they are in free-fall often feel that they want to get out “while they still have something.” But just like toilet paper, you’re not going to be the last one to the party only to find that the person before you sold their stock to the last available buyer.
In both cases, the behavior of hoarding toilet paper or selling stocks into a market crash are irrational and detrimental.