Panic Buying And Selling

I've noticed recently that I'm more susceptible to panic buying than panic selling. Somehow, I have to strategize first before clicking the sell button, like what amount of loss will I realize at the time of selling or how much potential upside I might be forfeiting.

With buying, I'm more optimistic on the future value or potential upside of a project, so if it resonates, I just jump in, riding the wave of FOMO.

In a way, buying and selling are on the opposite sides of the spectrum between being an optimist and a pessimist from an investor's perspective.

Of course, this is oversimplified, and I'll rather be more realistic in matters of trade and investing than tread the extremes of this spectrum.

Two Opposing Forces

Now, as much as being rational gives you an edge in trading, you also have to handle the fact that markets often act irrationally.

Image Source

This creates a sort of dilemma, you have to switch between two mental states, one that is analytical and risk-averse, and the other which is emotional and impulsive.

The latter has to do more with keeping up with the pulse of the market through gathering information, and the former is more or less about cutting through the noise and focusing on fundamentals as much as one possibly can.

I think one of the reasons why markets act irrationally is because the majority of market participants are driven by their emotions and behavioral biases, rather than pure logic and fundamentals.

I'm not sure if this is an absolute. Because the majority aren't usually the main drivers of market movements - often, it's the actions of large institutional investors, algorithmic traders or other well-informed and well-capitalized players that have an outsized influence. Nine times out of ten, these category mostly act rationally.

That said, the irrational behavior of the masses can still create significant volatility and disconnect the market from underlying economic realities.

Think of it like emotional contagion and herd mentality manifesting in situations like speculative bubbles, panic selling, and over-exuberance during bull runs. No wonder people say that the market is a beast of its own.

Image Source

Dynamic Challenge

So we have these two almost opposing forces that seem to govern the markets - the emotional irrationality of the masses, and the more calculated, analytical approach of the informed institutional players.

As an individual investor, navigating this dynamic is challenging against the backdrop of information overload, social media influence and 24 hours news cycle.

A good start is having some form of awareness of these two forces, the behavioral pitfalls of each. And learning to separate emotion from reason is crucial, especially when it comes to maintaining an open and long-term perspective.

Of course, not getting swept up in the prevailing sentiment - whether it's optimism or pessimism is also crucially important. For me, the goal is always to see reality just as it is, as much as I can.


Thanks for reading!! Share your thoughts below on the comments.