Fear is a complex emotion taking many forms such as worry, fright, alarm, and panic. When fear is given free sein, it typically combines with other negative emotions such as hatred, hostility, anger, and revenge, thereby attaining even greater destructive power.
Fear among investors shows itself in two forms: Fear of Losing and Fear of Missing Out
- Fear of Losing Money: This form of fear affects rich and poor alike. The more you have the more you can lose, and therefore the greater the potential for fear in any given individual.
- Fear of Missing out: This phenomenon often occurs after a sharp price rise. If investor are underinvested as a sharp rally begins, the perception of missing out on a price move and of subsequent underperformance is so great that the fear of missing the boat forces them to get in.
Fear in effect, causes us to act in a vacuum. It is such an overpowering emotion that we forget about the alternative, temporarily losing the perception that we do have other choices.
Fear of losing can also take other forms. For instance, occasionally we play mental games by refusing to acknowledge the existence of ominous developments. This could take the form of concentrating on the good news, because we want the market to rally, and downplaying the bad news, although the latter may be more significant. Needless to say, this kind of denial can lead to some devastating losses.
Some other Fears:
- A Threat to National Security Triggers Fear
- Worrisome News Stimulates Fear
- A Fearful Mass Psychology Is Contagious
- Fear of a Nver Ending Bear Market is a persistent myth
- Individuals Retain All Their Past Fears
Aspect of Greed
Greed is at the other extreme of our emotional makeup. It results from the combination of overconfidence and a desire to achieve profitable results in the shortest amount of time. In this age of leverage markets, be they futures or options, the temptation to go for the quick home run is very strong. The problem is that this quick-grab approach is bound to lead to greater stress and subjectivity.