Fear and greed can drive markets to extremes from "summary" of The Little Book of Bull Moves in Bear Markets by Peter D. Schiff
Fear and greed are the primary driving forces behind market movements. When fear grips the market, investors become desperate to sell their assets, causing prices to plummet. This fear can be irrational, leading to panic selling and creating opportunities for savvy investors to buy low. On the other hand, greed can push prices to unsustainable levels as investors clamor to get in on a hot investment trend. This can create a bubble that eventually bursts when reality sets in. These extreme market movements driven by fear and greed are what create opportunities for contrarian investors. By going against the crowd and buying when everyone else is selling (or vice versa), contrarians can capitalize on these emotional swings in the market. However, it takes courage and conviction to swim against the tide, as going against the prevailing sentiment can be a lonely and challenging endeavor. Historically, markets have swung between periods of extreme fear and greed, creating opportunities for those who are able to see through the noise and stay focused on the long term. By understanding the psychology of fear and greed, investors can better navigate the ups and downs of the market and position themselves for success. While it may be tempting to follow the herd, the most successful investors are often those who have the discipline to stay true to their own investment thesis and remain patient in the face of extreme market movements.
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