Savvy investors know that financial markets are driven by two powerful emotions, fear and greed.
Fear is the response to threat, and greed is the response to opportunity. Fear seeks to preserve an asset, and greed seeks to expand it. Fascinating economics.
But forgetting about the stock market for a moment, consider how these two emotional states apply to the individual.
Think about how fear and greed affect the marketplace of one.
In my experience, there is a direct relationship between the quality of life and the freedom to make choices that are not based on fear. Once a person gets to the point where they’re not always preserving the self, responding to threats, anticipating dangers, preventing loss, avoiding inconvenience and scoping out the competition, it’s amazing how much time and energy are left to focus on real growth.
On the other hand, imagine somebody who is trapped in a fear state. She would love to take intellectual risks and be more creative and try innovative projects and open her heart to love again, but her daily life is shrouded in anticipation and awareness of danger.
In fact, so scared of further losses, she typically throws her most imaginative plans out the window.
Can’t dream right now, working. Must solely resolve the economic problem of livelihood.
This attitude is very common, completely understandable and quite useful. Fear is fuel. Humans have developed the ability to feel fear because it’s evolutionarily advantageous. And not surprisingly, the majority of the world doesn’t have the luxury of living any other way.
However, if we are so blessed, there comes a point in our journey where we make the transition from fear to greed.
Now, don’t get your prayer beads in a bunch. We’re not talking about anything sinful or illegal or unhealthy here. Because sometimes greed simply means responding to opportunity intensely and quickly. Sometimes greed simply means expanding our assets and taking care of ourselves without guilt or blame.
Is that such a moral trespass?
This concept will be hard for many people to grasp, considering all the religious baggage around greed as the inherently sinful act that underlines all other sins.
But let’s go back to the stock market for a minute. The financial industry built something called the fear and greed index. It’s based on the premise that excessive fear can result in stocks trading well below their intrinsic values.
You might want to read that definition once again. Because it’s exactly what happens to human beings when they get trapped in fear. We trade below our intrinsic value.
Gekko’s famous speech outlined that greed was good. He said that greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind.
Sounds like a winning stock to me.
Perhaps greed is our ticket to moving from dealing with change to creating it.
LET ME ASK YA THIS…
How would your life be different if your decisions weren’t made out of fear?