Mob Psychology: Breaking Free to Secure Financial Success

by Sol Palha, Lead analyst at Tactical Investor

Outwit Mob Mentality: A Guide to Stock Market Investment Success

Updated May 20, 2023

Kindly ensure you have perused Part 1 and Part 2 of this series before proceeding.

As Michel Montaigne so astutely observed, “There is nothing so conformable to reason as to convert everything to our use.” This sentiment holds true regarding the realm of stock market investing and the phenomenon of mob psychology.

In the face of market turmoil, the wise investor will embrace the opportunity presented by the masses’ panic and use it to their advantage. As the masses recklessly sell, discarding valuable assets, the savvy investor will calmly and deliberately step in, buying low and positioning themselves for future gains.

But one must be cautious not to fall prey to the seductive siren song of market euphoria. When the masses are in a state of ecstasy, dancing and celebrating the seemingly never-ending good times, it is time to exercise caution. This is the time to take profits, sell high, and avoid being swept away in the tide of exuberance.

Contrary to popular belief, hard work alone is not enough to ensure success in the stock markets. It is a common misconception that relentless effort equates to savvy investing. Instead, the key to success in this arena is patience. Those who can wait and make informed decisions rather than succumbing to the moment’s pressure often reap the greatest rewards.

The principles of mob psychology offer valuable insights for those seeking to navigate the stock markets successfully. By taking advantage of the masses’ fear and euphoria and by valuing patience over hard work, one can make informed investment decisions and thrive in this ever-changing arena.

Patience and Discipline: Key to Investment Success

This begs the question if your health is shot and you have millions, can this be construed as a success? We think not, for without your health, you are nothing.

To attain success in life, two essential qualities must be mastered: patience and discipline. Mastery of these principles will bring one closer to understanding the intricacies of mob psychology. It is important to note that hard work alone does not guarantee success. A life consumed by tireless effort, neglecting one’s physical and mental well-being, may result in financial gains but is not an accurate measure of success. For, as the saying goes, ‘health is wealth,’ and without it, all other accomplishments are meaningless.”

Simplifying the Art of Investing Success

One can distinguish a valuable investment from a subpar one by mastering the principles of patience and discipline. These qualities do not correlate with hard work and can be easily acquired. However, to fully grasp the essence of mob psychology, one must first strip away any preconceived notions and approach the subject with a clear and open mind. In an increasingly crowded financial market, where investors rely on both fundamental and technical analysis, a deep understanding of mob psychology sets one apart from the crowd and provides a distinct advantage.

Montaigne’s Take on Mass Psychology

As we move forward into the new millennium, the science of mob psychology emerges again as a formidable force in the investing world. Its effectiveness has been proven throughout history and will continue to be so in the centuries to come. Technical analysis will always play a role, but those who master the principles of mob psychology will experience an even greater financial and personal reward. By harnessing the power of mass psychology, one elevates their investing game to a whole new level.

This is what Montaigne had to say on this topic:

In the study of history we must thumb without distinction every sort of author, old or new, French or foreign, to get at their great variety of matter, But Caesar, in my opinion, deserves particular study, not only for his knowledge and manner but himself. Aside from the false colours with which he seeks to paint over his bad cause and the filth of his pestilent ambition, the only fault I can find with him is that he spoke too little of Caesar.

In reading history, I am accustomed to consider who and what the author may be. If he is a professional writer, I expect to learn from him mostly style and language. If he is a lawyer we should note what he offers on civil government, legal controversies and the life; if an ambassador, what he says on the sources of information and the conduct of negotiations. We should always bring the cobbler to his last.

I like historians who are either very simply or very capable. The simple ones make it their business to merely collect what comes to their hand and record it faithfully, without discrimination or contributing anything of their own mind; they leave us to our own judgement in getting at the truth. Such for example is honest Froissart, who is frank enough, when he is caught in error, to correct it on the spot and who gives us the varied accounts made to him of the same event and even the rumour current in his time. His is the naked, raw material of history, which everyone may profit by as far as he is able.

Strategizing with Politics in Financial Markets

Let’s use the Trump-Biden Election as an example

We have been asked time and time again about our political affiliation. It is important to note that we never allow our personal views to infect or prejudice our outlook. This approach is a recipe for disaster. Politicians today are more concerned with looking good than doing what is good for the nation. As a result, these politicians are viewed with distrust and low approval ratings.

We would endorse a politician who favours a libertarian outlook, looks to control the debt, reduces interference in foreign nations, implements hard money policies, and, most importantly, focuses on improving the country rather than benefiting the corporate world. Unfortunately, the odds are stacked against such a person, and it is unlikely that we will see a leader of this calibre shortly.

Therefore, we are left with either wrong or terrible choices. It is better to deal with the devil you know than the one you will be forced to discover. Based on mass psychology and trend analysis, the markets seem to favour a Trump win. However, this is not an endorsement but a reflection of trend analysis. If Trump does not win, it would mean nothing to us, and we would simply move on to Plan B.

Focus on the Trend

The trend is your friend. Anything that falls outside or in between is your enemy. It is crucial never to fight the trend as it will always lead to a losing outcome. We monitor the weekly charts closely as a bullish MACD crossover could lead to an explosive upward move. However, if the crossover fails to complete, the markets will let out a nice dose of steam.

Investors should continue their daily lives and focus on things that bring them peace and happiness. Remember, today’s news is nothing but weaponized propaganda.

Modern Montaigne: A Reflection

In studying history, it is essential to consider the various perspectives and biases that shape our understanding of events. It is not enough to simply recite facts; we must explore the forces that have shaped them and examine how they continue to shape our world.

The recent election of Donald Trump and Joe Biden serves as a vivid illustration of the deep polarization that exists in contemporary society. The divide between red and blue states, between rural and urban areas, and between different socio-economic groups has never been more pronounced.

One might argue that this divide reflects a society that has become increasingly fragmented and divided, where the lines between us have become more deeply etched and more difficult to bridge. It is a society in which the sense of common purpose and shared values that once defined us as a nation has given way to a fragmented and atomized world, where the bonds of community and the shared experiences that once held us together have grown weak.

Montaigne’s Musings Today

What would a modern-day Montaigne think of such a society? Would he bemoan the loss of community and the decline of civic virtue, or would he embrace the diversity of thought and perspective that such a polarized society brings? It is difficult to say, but what is certain is that he would encourage us to examine our beliefs and values thoroughly, question the forces that divide us, and seek out common ground and shared understanding wherever it may be found.

In these tumultuous times, it is more important than ever that we strive to find common ground and build bridges across the divide. We must not let polarization and division define us but rather seek ways to unite as a society, united by our shared values and commitment to a better future.

Musings on the Art of Investing

Investors should always be vigilant and take note of market trends as they hold valuable insights into the potential outcome of their investments. The adage “the trend is your friend” holds true, as anything outside or between trends can often lead to unfavourable results. The key is not to fight the trend, as those who do are often defeated.

Our team closely monitors the weekly charts, paying particular attention to the bullish MACD crossover. This crossover could potentially result in a tremendous upward movement in the markets. On the other hand, should the crossover fail to complete, the markets may experience a necessary release of pressure.

Despite these uncertainties, there is no need to worry. Investors are encouraged to continue their daily routines and focus on what brings them joy and inner peace. It is crucial to remember that much of today’s news is a weaponized form of propaganda and should be approached with a critical eye.

FAQ

Q: What is the key to success in stock market investing?
A: Patience and discipline are essential for investment success, surpassing the importance of hard work alone.

Q: How can one distinguish a valuable investment from a subpar one?
A: Mastering patience and discipline help in identifying valuable investments. These qualities are not correlated with hard work and can be easily acquired.

Q: What advantage does understanding mob psychology provide in the financial market?
A: Understanding mob psychology sets one apart from the crowd and provides a distinct advantage in an increasingly crowded financial market.

Q: How does mob psychology affect investing in the stock market?
A: By harnessing the power of mass psychology, investors can elevate their investing game to a whole new level.

Q: How should one approach politics in financial markets?
A: It is important to avoid personal bias and instead focus on analyzing political trends and their potential impact on the markets.

Q: What should investors focus on in financial markets?
A: Investors should focus on the trend and avoid fighting against it, as it leads to unfavourable outcomes.

Q: What should investors do amidst market uncertainties?

A: Investors should continue their daily lives, focusing on things that bring them peace and happiness while remaining vigilant about market trends.

Q: How should investors approach news and information?
A: Investors should approach today’s news critically, recognizing that much of it is weaponized propaganda.

Q: What can history teach us about understanding events and society?
A: History allows us to explore the forces that shape events and society, encouraging us to examine our beliefs and values and seek common ground.

Q: What should investors be mindful of in market trends?
A: Market trends hold valuable insights for potential investment outcomes, and investors should closely monitor them for informed decision-making.

Originally published in May 2015, the contents have been revised to align with the latest developments and reflect current affairs.