This is WHY the market crashes!

Recently we’ve seen much gyrations in the markets with prices swinging UP and DOWN wildly. What exactly causes this??

In the Short run it is merely FEAR and GREED. In the short run this is primarily what controls the movements of the markets. I want to cite you an example of a VERY alarming text I received yesterday.

 

Due to the 1MDB situation in Malaysia there has been a lot of trouble stirred. I don’t know how true this message is but it SURE spread like wild fire.

 
“Pls stay away from restaurants / entertainment or crowded Chinese area esp these week or so. Try not to go out at night  as rumours are spreading that IS religious fanatic  Malays  are stirring their members and are planning a rampage to slaughter the Chinese or non muslim becos of the LowYat incident. They want to make it a racial issue.  The police had received info but cannot announce on news yet as do not want to cause panic to public. Police are on high Code orange colour alert. . Be friendly and keep a distance from them . The only way to calm the storm is to stay away.  The police must act fast. Btw, This cud be a diversion action by Umno supported NGO group on 1MDB  issue.  Bottom line, we are the minority citizens.  Malaysia is getting bad to worse under them . Is sickening news everyday.

A msg from my friend, just be caution.

CAUTION!! just now my Malay colleague who has some motor bike gang, he gave some information. For your reference, he is not involved with those stupid gangsters.. but ask me to tell my Chinese friends not to come out tonight in KL. Now Malay gangs are gathering at out of KL, which is from other states, to find ANY OF CHINESE in KL to attack. plz don’t come into KL tonight my friends..” – Jul 13 2015

Well. This COULD be a genuine warning. OR it merely could be a message sent out in hope of instilling panic, anxiety and hatred amongst the people in Malaysia.

Immediately people start fearing. Emotions run very high and intelligence runs low.

So why am I making this comparison to the stock market??

 

Bad news sells and it sells FAST. Fear spreads really quickly and panic starts rising. This is just how humans are programmed. All it takes is for somebody to say that ‘greece is bankrupt and will be kicked out of the EU’ eg for speculators to have lots of fear and start fleeing from the stock market.

Irrational behavior starts running high. This is precisely the reason why drops in the stock market can be so quick as compared to rises. There is an age old saying that goes “The bulls climb up the stairs while the bears fall out the window”

 

In summary, never let the emotions get the better of you when investing. Take emotions out of play. Analyze the numbers and understand WHY you got into the investment in the first place. If it still holds true stick to your gut.

 
God bless,
Resh

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