Fear and Greed

Fear and Greed are important short-term drivers of markets

  • In the short term markets react to emotion, not logic
  • Fear and Greed are more powerful in the short-term than thorough analysis
  • This explains, crashes, panics and other seemingly irrational market events
  • As such, there are times when it pays to take a longer-term rational view and not focus on what the market is doing short-term

Example:  During the internet bubble boom, companies with no revenue or earnings were screaming higher while solid companies with strong cashflow and dividends were going down in value (everyone wanted to be invested in Dot Coms)