Fear and greed in the market

Greed and fear.

Two emotions that play a bigger factor in people’s success or failure than any other emotion we experience. Both fear and greed refer to an inherent emotional state. Tens of millions of dollars have been made and lost based on these 2 emotions alone. In trade, in business and in relationships. So why do so many educational courses, stock trading books and online courses avoid this topic all together?

Maybe they don’t shy away from the topic of emotions, maybe by teaching certain methods and skill sets to their readers, they actually deal directly with the emotional side of trading!

It is well known that emotions create a certain amount of pleasure or displeasure. Emotions are also known to be related to mood, mood, desires and passions. The list goes on… So how do we as individuals develop a skill set to manage these emotions in business, in commerce and in life?

Charles Darwin argued that emotions actually serve humans, and rightly so, if our emotions have evolved over 2 million years. Shouldn’t we be using these amazing skills to our advantage instead of blaming them for poor decision making? I believe that poor decision making has nothing to do with emotions, but rather laziness and lack of planning.

A lesson from one of the greats!

I would be doing my readers a disservice if I didn’t mention Warren Buffett’s strategy. One of the most successful investors of our time. Warren Buffett stuck to his strategy and won big. Warren Buffett showed us how important and beneficial it is to stick to a plan. When deciding whether or not to invest in a company, Buffett and his partners follow a few simple guidelines, one of which involves trying to determine the company’s longevity.

As the market is overwhelmed by greed, so can fear. When a stock suffers large losses over an extended period of time, the market as a whole can become more fearful of sustaining even more losses. But too much fear can be a serious mistake. It is at this time that successful investors and traders make their move. This is where the real money is made.

Just as greed dominates the recent cryptocurrency boom or fear dominates the headlines about the potential outcome of a trade war, investors are quickly moving from one “safe” investment to another. It becomes a constant game of cat and mouse.

This flood of money into the stock market shows complete disregard for many technical indicators that continue to scream that a correction is imminent. Retail investors seem extremely happy with the deluge of headlines that read ALL HIGH. Should retail investors be gripped by fear of a major correction?. Of course, losing a large portion of the value of your retirement portfolio is a tough pill to swallow, but even harder to digest is the possibility of missing out on the huge gains the market is currently offering investors of all experience levels.

Having a clear understanding of my own personal goals, understanding my success, and creating a list of my OWN wants and needs, instead of taking other people’s dreams and trying to achieve them, was a colossal factor in extinguishing the flames of greed in my own trading and daily decision making.

I’ve also added a link to must-read books that have been helpful in my journey to mastering my emotions in decision-making. I will update this as I see fit..

One method I have found helpful is to be mindful of how I measure success, wealth, goals, and most importantly, happiness. It is very easy these days to allow outside influences to affect our happiness and success. Social media bombards us day after day with the success of others.