ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Fear vs. Greed: Increase your Gains and Minimize your Losses

Updated on October 9, 2009

Don't Let the Red Numbers Get You Down

After watching the Dow plummet to the point of no return, and seeing portfolio returns diminish, one’s first instincts are to dump their stocks and put whatever cash is left into a savings account.  These feelings are perfectly normal.  No sane person wants to give up their money to Wall Street, but we must learn not to let our feelings and emotions distract us from making intelligent investment decisions. 

Ever wonder how a company can have excellent financials and still underperform?  It’s due in part to behavioral finance, which is basically the psychology behind investing that involves the individual feelings and emotions of investors.  These feelings can be based on false perceptions, which lead to irrational market occurrences and inaccurate stock prices.  Suppose someone has a billion dollars to invest in a single stock, and their broker suggests a poorly rated company simply because he or she will make a fortune on commission.  Now the number of shares available has been decreased and the price per share has increased, making the company appear more attractive than it really is.  This example may be extreme, but it does occur frequently on a smaller scale.  People often follow their broker’s intuition, which may be biased on their own positive or negative feelings toward an investment.

If Every Investor Jumped Off of a Bridge…

Typically, there is an overall sentiment toward the market in general, shared by an aggregate of investors.  This massive group, that is a component of the investing public, often has the same expectations of the market, thus causing it to fluctuate up and down.  Last year, when the market began to slip, everyone jumped on the selling bandwagon and drove down stock prices as well as individuals’ portfolio values.  Who can blame them?  It was basically a massive game of “hot potato” and the last person holding the potato (or in this case, stocks) got burned the worst. 

It’s never good to be the last one holding a particular investment, because theoretically the value would be approaching zero as more people exited their positions.  However, it is good to be the first person to buy in.  Microsoft is proof that it pays to get in early, literally.  The first people to get their hands on Microsoft stock in the 80’s are now rich beyond their wildest dreams.  So as far as behavioral finance is concerned, the best advice one could give is simply: Don’t follow your instincts!  

Every Day is Opposite Day in the Market

Everyone around may be in a buying or selling frenzy and it may be tempting to follow the masses, but think about this.  In any transaction, there is a buyer and a seller.  When stocks were all being sold like hot cakes last year, who was on the buying side?  (One man’s trash is another man’s treasure, of course.)  Obviously, the stocks sold couldn’t be without the potential for returns, or else no one would buy them.  Who wants to invest in something with no profit potential?  It seems that an investor is more successful when he follows his own path and chooses his own companies, rather than buying and selling with everyone else.  If stocks are bought while the market is soaring, there is less room for gain and more room for loss.   The same is true for down swings.  The intelligent investor that is making high returns today is the investor that buys when everyone sells and sells when everyone is buying.  This investor saw the downturn in the market as a rare opportunity, rather than a financial disaster.

My point is that you should do the opposite of what the rest of the investing public is doing.  Follow logic over emotions to prevent actions such as buying high and selling low.  Greed and fear may drive the market, but don’t let them drive you!

Do you follow popular stock opinion and tips from television and newspapers?

See results


    0 of 8192 characters used
    Post Comment
    • drbj profile image

      drbj and sherry 

      9 years ago from south Florida

      My dad was also a contrarian when it came to the market. Worked for him. Thanks for a very informative hub.

    • Last Hand Willie profile image

      William Hodge 

      10 years ago from CAMDEN, SC

      I learned many years ago that the stock market is like the ocean. The waves roll in and out all day long, but the tide turns with time. You can play in the waves any time , but the boat find safes harbor only at high tide. If you jump out when the tide is low, It's a long swim home.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)