This Day in History...

On November 24, 1759 Mount Vesuvius, on the Bay of Naples, erupts for the thirty sixth time since it buried Pompeii and Herculaneum in 79 AD.

The mountain goes dormant over the next two and a half centuries with the exception of a minor eruption in 1855. After that, it is the population that explodes. Talk about fear of missing out...clearly the painful lessons of history are no match for the allure of wine, olives, and ocean-front property. Over 700,000 people now live in the “death zone” around Mt. Vesuvius. Believing they are safe and their subjective risk is low, has led many to take on riskier behaviors, not to mention astronomical mortgages.

With no major eruption of Vesuvius since 1944, and none of the explosive variety since 1779, it is easy to downplay any danger at all. Thus, when an eruption does occur, things end up likely worse, more lives lost and property damage, than if there were more frequent eruptions and no illusion of safety. All investors, not just those in tony Italian real estate, engage in similar behavior. This is where FOMO and risk tolerance converge. Lulled by recency bias into perceiving less risk because of current positive returns, many change their behavior, accumulating more volatile assets. Guess what happens next? When volatility erupts, they get burned. Compratore stai attento. Translation: buyer beware.