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: To stem losses, investors quickly sell stocks and buy safer assets, like money-market securities, stable-value funds, and principal-protected funds—all low-risk but low-return securities. Following the Herd vs. Investing Based on Fundamentals
This mass exodus from stocks shows a complete disregard for long-term investing based on fundamentals. Granted, losing a large portion of your equity portfolio is a tough pill to swallow, but you only compound the damage by missing out on the inevitable recovery. In the long run, low-risk investments saddle investors an opportunity cost of forfeited earnings and compounded growth that eventually dwarf the losses incurred in the market downturn. Just as scrapping your investment plan for the latest get-rich-quick fad can tear a large hole in your portfolio, so too can fleeing the market along with the rest of the herd, which usually exits the market at exactly the wrong time. When the herd is fleeing, you should be buying, unless you're already fully invested. In that case, just hold on tight. The Importance of Comfort Level
All this talk of fear and greed relates to the volatility inherent in the stock market. When investors find themselves outside of their comfort zones due to losses or market instability, they become vulnerable to these emotions, often resulting in very costly mistakes. Avoid getting swept up in the dominant market sentiment of the day, which can be driven by irrational fear or greed, and stick to the fundamentals.