The two factors which move the market as an old Wall Street adage states are fear and greed. Many would say that greed dominated during the tech bubble of the late 1990s and fear had ruled behavior in the recent financial crisis (during late 2008 and early 2009). May we define first what greed is. Greed, as defined by Wikipedia, is also known as avarice, cupidity, or covetousness. It is the inordinate desire to possess wealth, goods, or objects of abstract value with the intention to keep it for one’s self, far beyond the dictates of basic survival and comfort. It is applied to a markedly high desire for and pursuit of wealth, status, and power.
As secular psychological concept, greed is, similarly, an inordinate desire to acquire or possess more than one needs. The degree of “inordinance” is related to the inability to control the reformulation of “wants” once desired “needs” are eliminated. Erich Fromm described greed as “a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction.” It is typically used to criticize those who seek excessive material wealth, although it may apply to the need to feel more excessively moral, social, or otherwise better than someone else.
The purpose for greed, and any actions associated with it, is possibly to deprive others of potential means perhaps, of basic survival and comfort) or future opportunities accordingly, or to obstruct them therefrom, as a measure of enhanced discretion via majority belongings-having and majority competitive advantage, thus insidious and tyrannical or otherwise having negative connotation. Alternately, the purpose could be defense or counteraction from such dangerous, potential leverage in matters of questionable agreeability. A consequence of greedy activity may be inability to sustain any of the costs or burdens associated with that which has been or is being accumulated, leading to a backfire or destruction, whether of self or more generally. So, the level of “inordinance” of greed pertains to the amount of vanity, malice or burden associated with it.
According to Tina Brown, “The 2008 financial crisis is usually attributed to vampire squid greed. There was certainly a lot of that. But it was also just as likely to have been caused by the chaos of process created by those big, sexy bank mergers when, in the name of ‘economies of scale,’ critical members of the trust and responsibility chain were cavalierly eliminated.”
On the other hand, what is fear? According to Wikipedia, fear is an emotion induced by a threat perceived by living entities, which causes a change in brain and organ function and ultimately a change in behavior, such as running away, hiding or freezing from traumatic events. Fear may occur in response to a specific stimulus happening in the present, or to a future situation, which is perceived as risk to health or life, status, power, security, or, in the case of humans, wealth or anything held valuable. In humans and animals, fear is modulated by the process of cognition and learning. Thus, fear is judged as rational or appropriate and irrational or inappropriate.
“Fear and greed are potent motivators. When both of these forces push in the same direction, virtually no human being can resist,” says Andrew Weil.
Everybody is frightened during the late 2008 and early 2009. The government was clearly worried about a system-wide financial failure. As Philip Roth states, “Fear tends to manifest itself much more quickly than greed, so volatile markets tent to be on the downside. In up markets, volatility tends to gradually decline.”
Intellectually, we all know that we need to but low and sell high in order to make money in stocks. Our psychological biases are particularly destructive during times of large market swings as experienced in the volatile market of 2008 and 2009 because emotions get magnified.
“The human mind is so sophisticated and human emotions are so complex that the emotions of fear and greed do not adequately describe the psychology that affects people as they make investment decisions.”
At the end of the day, you are the financial decision-maker and creator of your own wealth. Control your emotions, whether it be greed or fear, in order to grow your wealth.
(The writers are both Investment Adviser and Advocate of Personal Finance. They are engaged in Stock Market Investing. Also, they are active Licensed Real Estate Practitioners. For financial planning and speaking engagements, you may contact them with mobile # 0919-376-2922 or Tel. No. (074) 244-4026).
