Chapter 4: How the Crowd Influences Our Personal Psychology
What we will cover in this chapter
- As a market move matures, the prevailing mood of the crowd intensifies. It exerts an increasingly powerful influence on our emotions. This creates a strong temptation to dispense with rational analysis and indulge in emotional responses to market events.
- Coincidence of contradictory ideas – ‘earnings don’t matter’, ‘everyone can hedge default risk’, ‘property prices only go up’ and ‘a currency union can function with one monetary policy and 17 fiscal policies’ are all examples of where contradiction was not only evident in the financial markets but characterised the prevailing mood of the bull market prior to a crash.
- Crowds respect force ...