Investment Psychology: Buy When the Masses Panic
We all know negativity sells as the crowd loves misery. You hardly ever see a group of individuals happily sharing a nice story, but it is amazing how they will smile when recounting some tragic event, and go to great lengths to give you all the unnecessary details. We also find it incredibly strange that people can talk about the losses they incurred during a stock market crash with such calm but when the stock market is crashing they panic and dump the baby with the bathwater.
Why the change in attitude? Is there a difference? in one instance you are losing the money in real-time and there is a chance to recoup these funds if you don’t give in to panic. In the former instance, you have already sold the position at a massive loss and you have no plans of jumping into the market; well, at least that is what applies to those who follow the masses.
You might find our recent article interesting: Why you should not be worried about A stock Market Crash
The long list of headlines below which appeared in Feb 2016 on various sites highlights how negativity seems to peak around market bottoms. However, have the masses or the naysayers making these claims learnt anything from history; they have not.
Instead, they continue screaming even louder and louder hoping that the sheer volume of their screams will push the market lower. What happens instead is that the market always takes off. Look at Marc Faber, last year and then throughout this year he has stated the market is going to crash. Take a look at this video and you can find much more by doing a simple search on YouTube. In Aug of 2015, he was predicting Gloom and Doom and has continued to do so before and after that
And as expected, he was dead wrong as he and other naysayers have been for years; the only way they make money is selling you bad advice that they would never ever put to use. If they ever listened to themselves, they would have been bankrupt a long time ago.
Now let’s look at him in 2016
Investment Psychology lesson 2: Focus on the Crowd
Notice how misery loves company, Google “US economy in trouble, or US economy facing a recession” or any other negative topic and you will find a plethora of new articles being pushed out almost on a daily basis. The consensus is for the economy to pull back and consequently for the markets to tank. The economy could sputter, but the markets will not tank as everyone is leaning towards that direction. Everyone usually knows next to nothing when it comes to the market. Unless the trend turns negative, you should not give two hoots to the doom scenarios these highly paid clowns come up with. Investment Psychology Explained
Well, the world did not end the markets did not crash, they actually rallied in the face of extreme negativity. The Dow is still not out of the woods, a test of the August lows is expected unless the trend on the SPX suddenly turns positive. The volume of negative articles and manufactured negative data continues to rise, setting the base for the Feds to sell “the prince rescues the poor damsel in distress story”.
We use the word Manufactured because no data the government issues can be trusted. When crime incorporated is in charge, the assumption should be that the data issued is done to support whatever scenario the spin-doctors choose to create.
Try Something Different instead of focussing on Yesterday’s Rubbish
To understand the future, you need to understand what is taking place right now. In one second right now will become the past and the next second will become the present. Focussing on the present gives you the chance to not only shape the past but the future. To get a glimpse of what the future holds, in general, all you need to do is look at the masses.
Nothing has changed the Drs of Doom continues with the same ploy; crap is wrapped up and marketed as Gold. In essence, this is a perfect example of “Groundhogs day” in action. The outfits and players have changed, but the theme is the same. Nothing has changed, and nothing will change for those who embrace the mass mindset.