Posts Tagged ‘ greed fear ’

Fear & Greed – Understanding how emotions are driving markets?

What most people forget when starting to look at investing is how much the emotions of fear and greed will play an important role in the behavior of stock / crypto prices , economic statistics, valuations, earnings, and . Short term these two emotions are just as important as any other factors or even more so .

This post will go through the role fear and greed play in the psychology of the market, and how investors can use it to their advantage . One of the greatest investors in the world uses this psychological techniques :

Warren Buffett on Fear and Greed

What is fear and greed?

For as long as investing has existed, it has been clear that price movements are not always rational, they are more emotion playing a key role in the decision making of investors. Of all the emotions that can affect the prices and other assets, fear and greed are the most unique .

Wen greed dominates, investors are concerned with more returns . Confidence is high, and headlines good news. This is also when the prices of riskier assets outperform conservative assets.

When fear dominates, investors are concerned with preserving capital. Investor confidence is low, and headlines of news are bad . This is when safe haven assets like US treasuries,gold , Bitcoin often outperform other asset classes.

How do emotions affect the stock market?

If you look at the price chart of any crypto / stock market index, you are likely to notice that volatility is greatest at major highs and lows. Very often these highs and lows don’t correspond with major changes in the economy or corporate profits either. Increasing volatility is a sure sign that emotion, particularly fear, is playing a part in the decision-making process of traders. Fear is not only associated with downside – the fear of missing out(FOMO) can drive prices to irrationally high levels.

I’ll write part two tomorrow on how to utilise this and

Millennial missed huge returns in stock market and could affect their future

Greed and fear moves the equity market more than any other market in my opinion, stock market is up 17% in a year. Remember in 2009 and everyone thought the world was going to end. The market is up a massive 197% since the March 2009 low.

It’s not timing in the market that delivers a return. It is time in the market.

Warren Buffett said it best:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

What I have seen is a lot of individuals under the age of 32 haven’t participated in this rally and this could have serious consequences for their financial futures.

There is a mind-set amongst the millennial. Uncomfortable with choosing the stock market as their preferred method of investing they have the same attitude as their grandparents, risk averse.

The most preferred investment for millennial is cash, which is crazy in an era with inflation and low yield it could possibly be the worst in true return.

Millennial are not investing, they don’t have the pensions that their parents had and have a bigger burden of accumulating wealth on their own for their retirement needs. Particularly in an era where life expectancies are getting long, health care costs are going up, so they have a bigger financial outlay but are saving less.

This is an interesting trend I see in the market place that the generation that will have the largest financial burden are saving the least.

Tony Evans

Tokyo

24/7/2014

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