[Week 42 of 2025] Milestones and Misbeliefs

Welcome back to Price and Prejudice with a few musings from Week 42 of 2025.

Milestones and Behavioral Finance

There’s a special kind of satisfaction in watching your net worth cross from red to black — not wealth exactly, but solvency, that moment when you finally stop paying for the past. This post titled “14 Financial Milestones Worth Celebrating” sketches that journey with enviable clarity. From clearing student debt to hitting the first $100,000, and from buying a home to declaring financial independence, these milestones chart a lifetime of incremental control over one’s balance sheet.

In behavioral finance, milestones like these can be interpreted through the lens of mental accounting, first developed by Richard Thaler. We don’t experience wealth as a single stock of value, but as a set of mental “buckets”: debt, savings, retirement, freedom, each with its own emotional yield curve. Crossing a milestone reclassifies risk between these buckets: a paid-off loan reduces perceived loss exposure, while a first $100,000 reframes saving as investment. The pleasure isn’t just symbolic; it changes behavior.

Still, the list is also a helpful reminder that every goal begets the next, as if the utility function itself compounds without limit. Behavioral finance once again warns that this can harden into running on a hedonic treadmill: once “enough” is achieved, satisfaction resets, and the next milestone becomes the new baseline. Perhaps the final milestone, then, isn’t financial at all but cognitive: learning to stop the mental compounding. At some point, the marginal utility of one more goal falls below the emotional cost of chasing it. In that sense, the ultimate return on investment is psychological: the moment when your future cash flows feel secure enough that you can finally spend your most finite asset: time.

The Market That Forgot to Doubt

For once, the short sellers are the ones asking for sympathy. Traditionally, they’ve been the villains: accused of betting against prosperity, talking prices down, and feeding panic. They were the pessimists who never got invited to the party, and when they were proven right, no one thanked them for turning off the music. But this year, the mood has shifted. As this FT article points out, traders betting against U.S. equities are enduring their worst returns since 2020, with a basket of the 250 most-shorted stocks up 57 percent. A market powered by AI enthusiasm, lower-rate expectations, and an army of retail investors has made skepticism not just unpopular but unprofitable.

So what can the skeptics do in a market that refuses to correct? The classic “borrow and bet” trade has lost its edge in a market where momentum trumps math, so the new game is deeper and slower: activist research and influencing governance or deeper forensic accounting. One can also shift focus to credit, where defaults still obey arithmetic; others can build optionality through derivatives. But in truth, their best trade may be restraint. Keynes warned that “the market can stay irrational longer than you can stay solvent.” In this cycle, it feels inverted: the short seller must stay solvent longer than the market can stay euphoric.