When Greed & Fear Take Over... | StocksForGrads.com

27 Sep

When Greed & Fear Take Over…

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Greedy Investor There is an old saying that markets are driven by just two emotions: Fear and Greed. While this may seem over-simplified, it’s often true!

To a large extent, greed and fear indeed drive the buying and selling actions of investors, traders, hedge funds and institutions.

You see…Greed is an extremely powerful emotion - as is Fear. Make no mistake about it.

It’s unbelievably easy to get caught up in our emotions, and end up letting them dictate our thoughts and actions. Just ask any experienced investor or trader and they will tell you.

It’s really important that you understand how succumbing to these two emotions can have a huge effect on investors’ portfolios and the stock market.

So let’s take a look the perfect example:

The Dot Com Boom of the Late 90s

Intoxicated with greed, investors fell over one another to buy Internet-related stocks - although many of these companies were not even profitable!

The frenzied buying drove prices to ridiculous levels and created a huge bubble, which finally burst in mid-2000.

Before anyone knew what was happening, selling momentum had crossed the tipping point and stock prices began to drop like falling bricks. More and more investors became more and more fearful of sustaining further losses and began selling at any price they could - fast!

As a result, major stock indices crashed by up to 70%! Thousands of investors took massive losses in their portfolios. Some lost their shirts, their families, their homes and their retirement money.

Now, can you see how destructive these two emotions can be?

When a person gets shaken out of his comfort level due to losses or market volatility, he becomes vulnerable to these emotions, which often results in costly mistakes.

So How Can You Avoid This?

Always control your emotions and don’t get swept into the day’s prevailing market sentiment.

Is it easy? Hell NO! In fact, I guarantee you WILL struggle to keep your emotions in check.

But as long as you can keep your head straight and leave your emotions at the door, you can get very wealthy investing in the stock market - as many have done.

On the other hand, if you’re just in it for the money or you see the market as a way to get-rich-quick, you’ll keep falling into all the common traps… reaching for the moon, not cutting losses, and over trading.

It’s just a matter of time before you’ll blow up…

At StocksForGrads.com, we want YOU to be a rational, successful and wealthy investor. Come embark on your investing journey with us!

P.S. So that you fully understand this article’s message, I want you to check out these fantastic 3 video clips! And pay very close attention to the words.

1. How a Stockbroker Preys on his Prospect’s Greed and Makes the Sale (Boiler Room, 2000)