Fear and greed are the two driving forces of any market. Greed is driving prices up: more and more people are jumping on the train and buying stock, commodity or tulip bulbs and pushing prices up to a level where they are no longer sustainable and become a bubble.
When greed prevails in the market; nobody talks about fear. Greed completely overshadows fear and the fact that people usually have short-term memories also does a lot of good. In times of a bull market recovery, people forget what it was a few months or years ago and what it meant to be scary.
During the housing bubble, investors forgot the fear and panic that accompanied the Internet bubble. This time it's different – everyone will tell you. The fact that the market collapsed and collapsed just a few years ago does not help keep things in perspective and the market is heading for another collapse.
It is only human psychology, and has nothing to do with the country or even the century in which you find yourself. The first speculative bubble was recoded in the 1600s in what is now the Netherlands. It is recorded that prices have reached such a level that at one point – 12 acres of land were offered for a variety of tulip bulb!
At that time, greed was at its height and had completely overshadowed fear. One reason given by historians for the high prices of tulip bulb contracts was that people expected there would be a parliamentary decree that would cancel small tulip bulb contracts and limit the risk for the buyer.
During the internet bubble, greed was fueled by the assumption that old economic cycles are not applicable to new technologies and that the internet will completely change our lives.
Whatever the reasons: when greed invades the market, it completely overshadows fear and makes people forget how much they were afraid a few years ago.
Past greed and future greed
Fear works in much the same way, and when fear takes hold of the market, it overshadows future greed and exaggerate past greed.
People have lost a lot of money in the current financial crisis and they largely blame it on the greed of Wall Street bankers, hedge fund managers, real estate brokers and others.
Everywhere, there are cries of how the greedy people of Wall Street have ruined the economies of Main Street. Fear seized the market and greed is the culprit.
However, people are not talking about future greed, not yet anyway. No one is asking – where will the next bubble form?
The markets are seized with fear and blame past greed, but this completely overshadows the fact that there will be future greed.
There are some seasoned investors who talk about where the next big move is going to take place – green energy, gold, agriculture, emerging markets, etc., but their voices have been squeezed out by the cries of fearful investors.
Greed and fear work perfectly in tandem and complement each other perfectly.