Title: Financial Markets: When Fear and Greed Take Over
Headings: Financial Markets: When Fear and Greed Take Over
Financial Markets: When Fear and Greed Take Over
Key Takeaways
The Influence of Greed
A Lesson From the "Oracle of Omaha"
The Influence of Fear
Following the Herd vs. Investing Based on Fundamentals
The Importance of Comfort Level
Frequently Asked Questions
Why are fear and greed so important to market psychology?
How do fear and greed affect markets?
How can traders take advantage of fear and greed in the market?
How can one measure the level of fear or greed in the stock market?
The Bottom Line

Content: Accumulation of internet-related stocks, many of them barely startups, reached a fever pitch. Investors got exceedingly greedy, fueling ever more buying and bidding prices up to excessive levels. Like many other asset bubbles in history, it eventually burst, depressing stock prices from 2000 to 2002. 1
As fictional investor Gordon Gekko famously said in the movie Wall Street, "greed is good." However, this get-rich-quick thinking makes it hard to maintain a disciplined, long-term investment plan, especially amid what Federal Reserve Chair Alan Greenspan famously called " irrational exuberance. " 2 It's times like these when it's crucial to maintain an even keel and stick to the fundamentals of investing, such as maintaining a long-term horizon, dollar-cost averaging, and ignoring the herd, whether the herd is buying or selling. A Lesson From the "Oracle of Omaha"
An exemplar of clear-eyed, long-term investing is Warren Buffett, who largely ignored the dotcom bubble and had the last laugh on those who called him mistaken. Buffett stuck with his time-tested approach, known as value investing. This involves buying companies the market appears to have underpriced, which necessarily means ignoring speculative fads. The Influence of Fear
Just as the market can become overwhelmed with greed, it can also succumb to fear.