Fear not what you know; fear what you know not. Sol Palha
Crowd Psychology: buy the panic & sell the Joy
Updated Feb 2022
Yes, the comic strip and the accompanying article provide a visual and clear illustration of the principle of crowd psychology in action in the stock market. By showing the contrast between the emotions of fear and panic on one side and optimism and excitement on the other, it highlights the idea that market prices can be driven by the emotions of a large group of people. It also distinguishes between crowd psychology and fashion contrarianism, pointing out that the latter is based on appearance or trend-following rather than a deep understanding of market forces.
The illustration serves as a reminder that it’s essential to be aware of the influence of emotions on market prices and to approach investing with a long-term, well-informed perspective rather than simply following the crowd or jumping on the latest trend.
For individuals looking for a more nuanced and in-depth explanation of the mass mindset in action, the following article is highly recommended. A clear illustration of the mass mindset in action.
Expanding on the above phrase
The phrase “buy the panic and sell the joy” is a famous phrase in the stock market and is often used to describe a type of investment strategy that seeks to profit from market emotions. It suggests that when investors are in a state of panic, they sell their investments, causing prices to drop and that this presents an opportunity to buy low. Conversely, when investors are overly optimistic and buying into a market rally, prices can rise, which is seen as an opportunity to sell high.
This approach to investing is based on the concept of crowd psychology, which suggests that the emotions and actions of a group of people can influence market prices. However, this strategy can be risky and not always practical, as various factors, including economic and political events, changes in interest rates, and company earnings, can drive market prices.
It’s also important to note that crowd psychology can be a double-edged sword, as panic can quickly spread, leading to a downward spiral in prices, and joy can turn into overconfidence, causing prices to rise too high and eventually leading to a market correction.
Crowd Psychology clearly states that one should only abandon the ship when the masses are joyful.
Crowd Psychology and Buffett’s Investment Strategy
Warren Buffett, one of the most successful investors, is known for taking a contrarian investment approach. He often buys stocks that are out of favour or undervalued and holds onto them for the long term. By doing so, he is betting against the crowd and going against the conventional wisdom of the moment.
“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 long advocated for a simple, long-term investment strategy that involves buying and holding a low-cost, passively managed equity index fund. He believes that this approach offers a reliable way for regular investors to participate in the growth of the American economy and achieve long-term gains in their portfolios. This approach is straightforward, requires minimal time and effort, and offers a low-cost way for investors to achieve long-term success in the stock market.
“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 and 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 similarly 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
The crowd is not in a good mood. They’re panicked and making decisions based on their emotions. This often leads to selling and missing out on opportunities in the long run. When things settle down, the market usually bounces back, but people tend to repeat their mistakes and make the same emotional decisions again.
Once again, they (the crowd)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. Sol Palha
Other Crowd Psychology-related Suggestions
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