Fear and greed as a word is something that has been associated with us humans since primitive times. If you were to trace the very beginnings of human origin, you’ll see that these traits have been ingrained within us since those early times. These traits still guide us to this day on how we assess the situation and analyze our next step. And when it comes to the stock market, it’s a no-brainer in seeing these pop up around in every conversation.
The stock market is a breeding ground for wealth and economy and most of it is driven by these two traits. We can talk about the fundamentals, the strategy and all those goofy words but if you look deep within, the stock market is first and foremost driven by these two emotional traits; fear and greed. That’s what we’re here looking at today. The way how fear and greed have staked a claim in the stock market and how to manage it. Read along.
What is ‘Fear’ and how does it reflect on the stock market?
Fear is the instinct that we sense when we recognize any threats. It is present in each of us and we tend to feel the same whenever we are in any danger. This very feel is also experienced by a stock investor whenever he’s into the market. Any impending danger on the position of a person’s investment or trade will entice fear in a person. Fear is often a common theme when the stock market is on the bearish side and any interested investor tends to make his decisions based on the aspect of fear. If not managed well, fear may land you pretty bad deals which may hamper your investment portfolio and your value.
For say you’re one of those who deal in short term trades so as to realize quick profits. During this, any change in the market position of the stocks will, in turn, make you nervous and fearful of the future conclusion. That may result in you walking out of the trade sooner than expected and may miss out on the profits later on.
What is ‘Greed’ and how does it reflect on the stock market?
Greed is a different instinct to fear and is about the manifestation to win more. It is about wanting more of wealth and power. When it comes to the stock market, the wealth aspect of the greed suits perfectly. People have an inherent trait to seek more earnings and capital in the stock market. It is what lands many of the investors into a pothole of loss if not managed properly.
For say an investor wants to take advantage of the bullish market and intends to buy the shares hoping that the market will continue to move along in the upward curve. It’s not new to see greed surface time and again in the stock market as it has been evident throughout history in the form of different market crashes. You can take the dot-com bubble or the 2008 crisis. Primarily greed was one of the major factors that lead to that certain point before the market tipped over.
How to manage fear and greed in the stock market?
Although as human beings we are always driven by our primal instinct of fear and greed, there is enough evidence that we can control it and manage it according to our desires and needs. You just need to streamline it according to your plans and you’d be on the good side. We here look at the few steps to help manage the fear and greed in the market.
- Start with an Investment Plan: First and foremost, if you ever stop by any stock market investment tips, having a clear investment plan is of utmost priority. You need to have a plan so that you can base your decisions on the plan and not be driven by the emotional check. It’s pretty easy to get driven by the emotional impulse which will divert your attention from your investment plan and lead you to a different route. This is where having a clear investment plan is a must. You can decide for a long term strategy or a short term profit-seeking motive as per our need and act in line with your plans.
- Let go of the Get Rich Quick Mentality: The thing about the stock market is that it is a great place to grow your wealth in the long run. The myths flowing around the stock market that you can get rich overnight have created quite a mayhem in the mindset of people. It has, in turn, created a tilt in how we perceive the stock market. Historically, the stock market has offered better returns than any other investment option but that does take time. If you want to see your wealth grow multifold, abide by the virtue of patience and let your investment grow. Remember, ‘Rome wasn’t built in a single day’. Follow your investment plan and don’t give in to any fear or greed impulse. Let go of the get rich quick mentality.
- Keep track of your investments: Many would argue that after reiterating about the virtue of patience we have come up with this point of keeping track of our investment. By this, we mean that you need to keep a constant check on your investment and be able to assess your investment and see whether they align with your initial goals or not. Keeping a constant track on your investment and recording them will help you make analytical decisions going further and will help you put the emotions down. You can also rebalance your investment portfolio based on the need and desire as and when required.
- Be a constant learner: The great thing about the stock market is that nobody is at the very pinnacle of knowledge when it comes to it. Even the Oracle of Omaha, Warren Buffet reads every day and preaches about being a constant learner. Learn about how the market functions, the fundamentals, the technical aspects, learn about strategies, market trends and all. This way you can call upon your knowledge when it comes to making decisions rather than going for emotional impulse.
- Risk is inevitable: The stock market is quite dynamic and everchanging. Nobody can accurately predict the market every single time. There may be an instance where the stock market will perform poorly and you may lose out on the value of your investment. These things are inevitable and rarely anyone can get away from it. This is why you need a plan first and foremost. Because you can plan your strategy and deal with any impending risk or crash if such occurs. That way your instinct of fear will not be able to empower you while making decisions.
The stock market is an everchanging thing and we’re bound to get entangled in the circle of emotional impulse. The instinct of fear and greed are an engrained theme in human being and we cannot put an end to it. But we can manage it well so that it can be beneficial to us rather than affecting us. Have a clear plan and follow the aforementioned steps and you’d be standing on the greener side of the market.