Fear and Greed

There are many indicators that market strategists have come up with over the history of the markets. If I listed all of them it would probably take up a full section of the newspaper. In the last 20 years of dissecting the markets and watching its activity on a daily basis, the only indicator that seems to work every time is the fear and greed indicator. Investor psychology is fascinating to me and I have learned over the years that these two powerful emotions are what really move the market up or down. The big question is how do you react when the market makes you fearful? Do you panic and sell everything, or do you make investment decisions that are based on research and data?
The most successful investors never panic. They make educated investment decisions based on research. Money is not made when the market is at an all-time high. Money is made when the market is selling at a low. The reason I say this is because in the history of my career I have never had a client call me and panic when the market is at an all-time high and tell me to sell everything. I have however had client’s panic sell at market bottoms. It’s the ultimate market indicator, and I will tell you it is extremely accurate. This has been proven over the history of the market and it’s why most investors always underperform the market and institutional investors.
I have always tried to educate clients on the fact that market corrections are very common. They happen on average every eighteen months. Corrections are pullbacks that can be anywhere from ten to twenty percent. If you have a pullback more than twenty percent it is technically a bear market. We are not in a bear market as of today. Corrections are opportunities that present themselves quite frequently, and they usually last anywhere from three to four months. We have had two corrections in the last seven months, but we didn’t have one for four years prior to these two so we were due. I think the question on many minds has we seen the bottom.
Only time will tell if the bottom was made, but I would bet there are many investors on the sideline that are kicking themselves for not buying two weeks ago, and I know there are investors who sold that are regretting it now. This is where the greed factor will come into play and drive the market higher. The fear of missing out on the gains the market has created and will create in the future is almost as powerful as the fear of losing money.
At Fogel Capital, we make investment decisions based on research and data, not emotions. As always the opinions expressed in this article are that of the authors. If you would like to discuss this further you can reach us at (772) 223-9686.