Courtesy of Dr. Paul Price, Beating Buffett
Fear and Greed often make you do the Wrong Thing
Don’t fall prey to mass hysteria in your buy and sell decisions. A quick glance at the charts below says more about this than words can convey. When investors panic they tend to dump right near cyclical troughs.
It’s not an exact correlation but is quite statistically significant. Here are highlights of eight recent “get me out” periods from the past three years. Past performance is no guarantee of future performance but it is the best guide we have to go on.
You sometimes see false bottoms followed by lower lows. Even then you are typically mere months away from the final nadir. Other times the panic lows are one-shot affairs. All but the most short-term traders should be scaling into positions rather than selling into weakness.
