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A simple demonstration of this dynamic at work as it relates to the material level may be witnessed when we see people who have been poor or who went through a depression when they were young. No matter how successful and wealthy they may become, they fear losing what they have, never feeling that they are secure, and that enough is enough. The poverty can always happen again, they think. They are operating out of an unconscious fear, which propels them to want more and more. And this, of course, is exactly the original face of greed. |
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All of this is simply to point out that greed and fear are intimately connected, not such total opposites as we might like to believe. This is what makes them the yin and yang of investing, the two parts of the whole where each needs the other for its existence. |
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Always the person on the other end of your panic sale is licking his or her chops, looking for a killing out of your moment of panic. And always someone is on the other end, gladly selling you his or her stock, taking advantage of your fear of being left out, when that person thinks it's gone high enough to get out. |
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Market makers know how to play on the greed and fear of the investor because they know something about how these forces work within themselves. They know what you are thinking and feeling and they do their best to take advantage of it. That is how they make their living. |
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It is the rhythm of greed and fear, forever locked in a struggle both within the individual and played out in the market as a whole, that makes for part of the mystery of market direction. While many aspects of market movement may be analyzed and conjectured upon, no one knows for sure exactly how the market forces of greed and fear will be played out on any given day or even in any given hour. |
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Getting in Touch with Fear and Greed |
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If it is indeed true that fear and greed are closer to each other than we think, and that behind greedy trading actions lies fear and conversely, behind fear lies a barely concealed desire for wealth, what is the practical implication? |
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Simply this: That as investors we must be aware of both of these parts in ourselves. Tempered fear is caution. Tempered greed is assertive action to take decisive action despite never having total information. Both are necessary for the disciplined online investor. |
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