Ads Top

Greed & Fear - The emotions that drive equity markets


equity markets, mutual funds, fear & greed
A lot of people believe equity markets are the easiest way to earn money. Buy Low Sell High - quite easy, isn't it? Well, what if i say 90% of the people in the equity markets never make any money. You wouldn't believe me - right? Just search on Google & you will have the answer. Here is one of the reference Why 90% intraday traders lose money in the stock market.

Let's discuss a very recent example. The stock markets were at their peak during last half of 2017. I have personally met many new investors, who then believed there was no better time to invest their money stock markets. Each and every stock they invested in gave 10-20% returns in no time. Yes, that was a normal human emotion called GREED!! But does it work in stock markets?

All of a sudden, there were bond market inflation fears, there was growing tensions between US & North Korea & what we witnessed was a very normal market reaction, many indices fell 10-15% within a month. The same investors who were putting in everything a month back were in a state of panic. Yes, that was again a very normal human emotion called FEAR!!


I'm sure you would have heard Warren Buffett's quote 'We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful'. What actually happened in the above 2 scenarios was exactly opposite. You invested when everyone was greedy & looking to make a quick buck - And sold when everyone was selling!!

Now consider if you had invested when everyone was selling. Panic & Fear usually helps you to buy best fundamental stocks at discount. Wouldn't that be great? Well, it sounds good now - but not many would have invested when stocks are falling day after day.

This is what separates Men from Boys!!

Another human emotion which erodes investors portfolio is GUILT!! What if the price falls after i buy the stocks? What if the price shoots up after i sell my investments?




No one can pick the peak & the bottom. Not even the best in the business. There needs to be a reason to buy a stock & even stronger reason to sell. Ask questions - Why am i buying? Why am i selling? If you don't have the answer then simply DON'T!!

Make sure you pick the best fundamental stock & invest for long term. Picking best fundamental stocks are correct prices is also an art. This book is one of my recommendation How to Avoid Loss and Earn Consistently in the Stock Market. This helps you to identify quality stocks at the best price. This could be a starting point for new budding investors!!

Need some motivation to start investing? From Complicated to Committed - My relationship with Investment

Mutual funds as an investment instrument has been gaining popularity over the years, thanks to the wide range of options available and the ease of KYC process. To know more about them, check out The Mutual Funds Sahi Hai campaign, launched by The Association of Mutual Funds in India (AMFI) at www.mutualfundssahihai.com

Still have any questions or feedback on the article, don't forget to share it in the comments section below.







No comments:

Powered by Blogger.