Bee Stings
When was the last time you were stung by an ant, wasp, hornet or yellowjacket? Do you remember the acute pain inflicted by this pesky insect? Are you aware that there is a measurement tool to gauge the pain of stings? The Schmidt Sting Pain Index was created by entomologist Justin Schmidt to measure relative pain. His original paper was written in 1983 and ranked sting pain on a scale of one to four, four being the most painful. I recall being stung after stepping on a yellow jacket’s nest as a teenager – those stings are ranked a 2 – but it sure seemed awfully painful at the time.
When thinking about bee stings and pain, my personal view is that most of us fear the sting more than the actual pain. I think it is fair to say that we behave differently when we hear the buzz of a wasp or see a nest of red ants, and take steps to avoid their painful wrath. The anticipation heightens our sensitivity, I suspect, but I am not a scientist.
The markets also inflict pain, as many know. It is a different sort of pain, specifically the pain of loss. Behavioral finance experts tell us that the pain of loss is two times more powerful than the pleasure of reward. For example, a 10% decline hurts twice as much compared to the pleasure of a 10% gain.
After forty years in the investment advice business, I could give you plenty of anecdotal examples of client pain versus client pleasure. The easiest example: when account values go up 10%, which happens often, few clients call and share their thoughts about this. When account values go down 10%, the calls are constant and the pain is palpable.
Lately, even though most balanced accounts are NOT down 10% (nor even close), the fear of pain is very clearly evident in client conversations. And guess what? There is measure of investor fear similar to the Schmidt Sting Pain Index.
The CNN Fear & Greed Index uses seven different inputs to measure both greed and fear. Different than the VIX (a measure of volatility), the Fear & Greed Index weighs these seven inputs and plots them on a scale of 0 (extreme fear) to 100 (extreme greed). The factors include momentum, stock price strength, breadth, volatility, put/call option activity, junk bond demand, and safe haven demand. I cannot opine on the merits of these seven factors, but experience tells me that these inputs reflect investor greed and fear.
At this point in time (3/25/25, 4:41 pm) the Greed & Fear Index stands at 29, firmly in the fear area (25-45 range) and not too far from extreme fear range (0-24). Currently, five of seven factors fall into the “extreme fear” category. Volatility is neutral and junk bond demand is classified as “extreme greed”, a curious outlier.
With the media buzzing with stories about tariffs, inflation, and recession, are we anticipating market pain before it occurs? Are we taking appropriate steps to avoid the sting of market loss? Fear and greed are powerful emotions. We need a healthy respect to avoid falling prey to their often dangerous influences.
If 2008 was a Bullet Ant, 2025 will likely be closer to a Western Paper Wasp. Strong disciplines can help us avoid the bite.
Ralph McDevittMarch 25, 2025
There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing materials are accurate or complete. The CBOE Volatility Index (VIX) is a real-time market index that represents the market's expectations for volatility over the coming 30 days, derived from the prices of S&P 500 index options. The CNN Fear & Greed Index gauges stock market movements and whether stocks are fairly priced, based on the theory that excessive fear drives down share prices, while too much greed has the opposite effect. It compiles seven indicators: market momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe haven demand. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.
Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
