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: 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. Choose a suitable asset allocation. If you are extremely risk-averse, you are likely to be more susceptible to fear, therefore your exposure to equities should be smaller than that of people with a high tolerance for risk. Buffett once said: " Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market." 3 ﻿
This isn't as easy as it sounds.