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Why and How Mass Shootings Affect the Market

It’s unpleasant to write about this kind of stuff, but the latest mass shooting in San Bernardino caused a boost in the stock price of gun producer Smith and Wesson (NASDAQ: SWHC). Sadly, this is a familiar story. Mass shooting happens, people become afraid of legislation that will make it harder to get a gun, people stock up on guns.

Some people are claiming that this cycle is indicative of the fact that the gun lobby is too powerful. Some people take it a step further. They think that companies like Smith and Wesson use their considerable influence to stoke the flames of fear after a shooting. The idea being that they help spread the idea that all gun producers might be crippled by some new form of legislation. But, their powerful lobby insures this never happens.

If this is the case, a logical conclusion would be that the leaders of Smith and Wesson are callous, cold hearted, evil people. They are using national tragedies as a way to sell more of their product. I would argue that is too simplistic of a view. I don’t believe that the executive at Smith and Wesson are happy when horrible events occur. I think their hearts hurt just like yours and mine. I just think this is a simple case of cognitive dissonance.

Cognitive dissonance is when you hold two conflicting beliefs in your head, but you know that one of them is not true. When most people enter this mindstate, they find it untenable. You cannot think you are a good person and be happy about mass shootings. Thus, the second those thoughts creep into your head, you self justify, meaning you choose the option that still makes you feel like a good person. I believe this is what happens with those executives.

Regardless, you can’t argue with the performance of Smith and Wesson’s stock. And considering past history, no laws will be changed any time soon. Thus, you can expect more shootings and more returns for shareholders