Fear not what you know, fear what you know not. Sol Palha
Crowd Psychology: buy the panic & sell the Joy
We thought that the best way to illustrate how the masses operate would be to put up something that would be entertaining and educating at the same time. Our answer to this was to create a Comic Strip Illustrating The Mass Mindset, in action. If you want a more detailed analysis of this phenomenon, then take a look at this article A clear illustration of the mass mindset in action.
In the first part (look at the cartoon below), the naysayers are screaming death to the markets and the second are the enlightened ones celebrating and salivating as the market tumbles. In a nutshell, these compasses the most fundamental principle of Crowd Psychology. One must wait for the emotions to hit a boiling point and in that sense, it differs a lot from the so-called fashion contrarian style of investing.
Fashion contrarians embrace a new trend because it looks great or sounds cool or they want to appear to be contrarians without even knowing the actual meaning of the word. Fashion contrarians are nothing but lemmings with heavy camouflage gear.
Crowd Psychology clearly states that one should only abandon the ship when the masses are foaming with joy.
Crowd Psychology and Buffett’s Investment Strategy
Buffett always bets against the crowd
“We are going to be buyers of things over time. And if you’re going to be buyers of groceries over time, you like grocery prices to go down. If you’re going to be buying cars over time, you like car prices to go down. We buy businesses. We buy pieces of businesses: stocks. And we’re going to be much better off if we can buy those things at an attractive price than if we can’t.”
The “Oracle of Omaha” has a simple long-term value philosophy. For the regular investor, he says you should be a steady buyer of an equity index fund over the long term and be agnostic to the market or economic environment. Buffett believes this simple kind of investing will always pay off over the long term because you’re making a long-term bet on the American economy.
“So we don’t have any fear at all,” Buffett added during the ’94 meeting. “I mean, what we fear is an irrational bull market that’s sustained for some long period of time.” Full Story
Insiders and the coronavirus pandemic
Insiders are backing up the truck when it comes to buying stock in their companies. Astute investors would be wise to follow suit.
Vickers’ benchmark NYSE/ASE One-Week Sell/Buy Ratio is 0.33, and the Total one-week reading is 0.35. Insiders are not just buying shares, they are devouring shares. Insiders behaved in a similar fashion in late-December 2018, after stocks crashed on Christmas Eve; in early 2016 when stocks also corrected; and in late 2008/early 2009, at the depths of the Great Recession correction. Those were spectacular times to buy stocks. Insiders seem to be telling us that today offers a similar opportunity. https://yhoo.it/2TV0cE2
The Masses Are Nervous
As indicated above the crowd is far from happy; in fact, they are in a state of heightened panic, which means that in the long run, they are going to be sitting on the wrong side of the fence.
When the masses calm down, which is something they always do, but their timing is atrocious, the markets will have recouped most of their losses. Once they again, they will promise not to repeat their mistakes, but like crack heads they will do exactly the same thing and precisely the worst moment, ensuring they remain in the dog house forever.
Other Crowd Physiology related Suggestions
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