Understanding the mechanisms of greed and fear in markets

TWO strategy acronyms rule the market: Greed and Fomo. Greed stands for “greater returns expected every day”, and Fomo for “fear of missing out”.

These emotions determine the way investors approach the market. As tools to understand market behaviour, they are more useful than the classic bulls-and-bears analysis.

Greed is what keeps investors engaged in a rising market. It makes them reluctant to exit at a profit. This seems contradictory, but it explains why many investors continue to hold onto once-profitable stocks that have become serious losers.