Pigs and Sheep, Balancing Greed vs Fear

Tim McCarthy — Sun, 01 Dec 2013 22:51:51 +0000

Investing is often a psychological game between two emotions: fear and greed. The stock market can behave in a similar manner as stock prices act like a tug-or-war between fear and greed like when a company’s stock price goes up and down daily. Timing the markets is ridiculously hard because of the crowd, that is buyers and sellers, and driven by emotions and short term events rather than long run time horizons. The great value investor Ben Graham said it best, in the short run, the market acts like a voting machine, but in the long run, it acts like a weighing machine.

Since short run and long run investing is so different, it is best to know how human psychology works. An angel in one ear may be telling you to buy before it is too late, but a devil in the other may be warning you to run away from this investment. So rather than thinking of the market in terms of a bull market or a bear market, in the short term, the market participants behave more like a pig and sheep (greedy or fearful).

Take aways
It is good to know market sentiment and how powerful greed and fear can be to the market. Prices can spike or dip depending on the sentiment. Another thing is to broadly diversify your holdings so that you do not suffer the disadvantage of short-term volatility.

Information taken from The Safe Investor published by Palgrave Macmillan

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long term investing – Timothy F. McCarthy

Pigs and Sheep, Balancing Greed vs Fear