Psychology and COVID-19 with Dr. Daniel Crosby

Episode Summary

Executive Summary: Daniel Crosby discusses how investors and individuals can navigate COVID-era uncertainty using evidence-based routines, the PERMA wellness framework, and a rules-based mindset. He argues the crisis will likely deepen economic inequality and politicization, but also accelerate useful technology adoption and reveal both the best and worst of human behavior. For investors, he recommends purpose, proof, and process to avoid panic and stay disciplined.

Main Topics: Coping with uncertainty through the PERMA wellness model (Priority: 5/5): Crosby applies positive psychology to the pandemic, urging people to intentionally build positive experiences, engagement, relationships, meaning, and advancement into daily life. Technology, relationships, and remote interaction (Priority: 4/5): The conversation weighs the benefits and losses of Zoom, texting, online schooling, and virtual work, with Crosby preferring more human-like interaction but acknowledging tech’s broader reach and efficiency. The reopening debate and widening inequality (Priority: 5/5): Crosby predicts reopening will be shaped by class and income differences, since higher-income workers can stay home while lower-income essential workers cannot, and he expects political polarization to intensify. Investor behavior during market stress (Priority: 5/5): Crosby outlines a three-P framework—purpose, proof, process—to help investors resist panic selling and make deliberate decisions during market drawdowns. Assessing true risk tolerance (Priority: 5/5): He argues risk tolerance is often mismeasured and should be separated into risk composure, long-term risk preferences, and anxiety management, using both simulations and past behavior to evaluate clients. Permanent behavioral scars and human resilience (Priority: 4/5): Crosby says the crisis will leave scars, especially for younger investors and people facing job loss, but he also expects increased compassion, service, and eventual prosperity after the crisis.

Key Arguments: Positive psychology offers a practical framework for wellness during stress; Crosby uses PERMA to structure daily habits. The pandemic has weakened normal channels for relationships and meaning, so people must be intentional and systematic to preserve them. Reopening will not affect everyone equally; financial security determines who can afford to stay home versus return to work. The crisis is likely to deepen class divisions and may become more politicized along red-state/blue-state lines. Technology is useful, but video, phone, and face-to-face interactions are preferable to text because they preserve more human connection. Investors should rely on a three-step framework: purpose (revisit goals), proof (use market history), and process (stay busy doing the right thing). Risk tolerance is not a single trait; it includes composure, preferences, and anxiety, and advisors should measure actual behavior, not just survey answers. Panic selling is best prevented with rules, systems, and an advisor or partner who can intervene at emotional moments. Market history suggests drawdowns can be followed by strong forward returns; after 20%+ declines, expected next-year returns rise materially. The crisis may create long-term behavioral scars, especially for those who experience it early in their investing lives, but it can also catalyze optimism, gratitude, and social good.

Data Points: PERMA model factors: 5 - Crosby summarizes Martin Seligman’s wellness framework: positive experiences, engagement, relationships, meaning, advancement. Market time in recession over last 100 years: 20% - Crosby says the market has been in recession about one-fifth of the time historically. Average long-run annual market return: 9.6% - He cites this as the approximate long-term market average. Expected forward return after a 20%+ market drop: 14% - Crosby says the next-year expected return rises after a large decline. Global pandemic years analyzed: SARS, MERS, Ebola, swine flu - He references prior pandemic years as evidence that markets can still finish strong. Typical pandemic-year market outcome cited: Double digits - He says the market ended every one of those prior pandemic years up double digits. U.S. compliance with government lockdowns: Low 30% range - Crosby cites a survey showing Americans were among the least willing globally to comply. Asian-country compliance with government lockdowns: 80-something percent - He contrasts U.S. attitudes with countries that had higher willingness to comply. Walking during lockdown: 8 to 10 miles per day - One host describes his own routine while discussing coping behaviors. Zoom/virtual conference impact: Broader reach and more speaking engagements - Crosby says remote events let him accept opportunities he previously would have declined due to travel thresholds.

Pivotal Quotes: "The first P is for purpose." — Daniel Crosby: He introduces the first step of his three-part framework for preventing investor panic and revisiting goals. "We need something to do. We all know we have this bias towards action at times like this... keeping your hands busy so you don't mess up your portfolio." — Daniel Crosby: He explains the need for a positive replacement behavior during periods of market stress. "Depression is the inability to construct a future." — Daniel Crosby: He emphasizes the importance of hope and future orientation in adversity.

Implications: Listeners should use structured routines, historical perspective, and outside accountability to avoid emotional decisions. The crisis may accelerate inequality and tech adoption, but disciplined behavior can preserve long-term investing outcomes and personal well-being.