The stock market, basically keeps on swaying between the emotions of greed and fear. Since investors are unable to control greed and fear, there arises a huge volatility of the markets. When the markets go up in full swing, everyone is in a hurry to buy faster than the neighbor. There reaches a point where the stock becomes expensive by the day and stocks are found under by circuit for days together. Investors now become distressed when they are unable to buy. Then comes a big correction and there arise a stage where they want to sell faster than their next neighbor. The stock crashes and there arise a situation which is exactly the opposite of the present situation. In such a scenario, the stocks go on hitting lower on a daily basis and start losing its value. Investors are now distressed since they are unable to sell.
This above situation shows that the investors are not actually investing but they are speculating or in other words, gambling. They are becoming one fool by following another fool who has already bought that stock. This takes place with the fact in mind that there would be another fool. In fact, you don’t mind being a fool, as long as there is another greater fool to remove you from a stuck up situation.
If the markets fall on a certain day, fear starts dominating and investors are reluctant to invest. But this should not happen. For Example: When two planes crashed into the World Trade Center and the next day the world stops traveling. The airlines got empty due to the fear factor and this is unjustified. People were under fear assuming repetition. But the chances of recurring were very minimal. Planes do not crash into buildings everyday.
We can apply this above mentioned example in the stock market scenario too. When markets fall on a certain day, fear dominates and investors are reluctant to invest. Once the market bounces up, greed starts dominating and investors rush to buy. I now end this article by suggesting that salient events taking place on certain days should not affect our decision making, as an investor. One needs to have a long term view on investments.