Market Psychology

“You never get a bubble until the public, the brokerage community, the financial institutions, the pension funds, and even the universities are all involved.”

“The Street, unfortunately, is fairly well inured to the bursting of bubbles.”

“Stocks are the long duration asset, and their level reflects people’s optimism about the future and their attitude toward risk.”

“It has been well and correctly remarked that the only things that go up in credit crisis and financial panic are correlations and volatility.”

“The mistake most people make is answering the door just because Mr. Market knocks. You don’t have to let him in.”

“Crooks, crazies, egomaniacs, people full of resentment, people full of self-pity, people who feel like victims, there’s a lot of things that aren’t going to work for you. Figure out what they are and then avoid them like the plague.”

“Mr. Market grades you on a dialy basis.”

“Hoaxes, frauds, manias, and other large-scale financial irrationalities have been with us from the beginnings of the markets in the seventeenth century, long before the Internet.”

“Periods of depression invariably follow periods of overoptimism, when fear replaces hope as the controlling emotion.”

“Fortunes are made during panics, not booms.”

“Euphoria can lift housing and dot-com prices; panic can send sound banks tumbling.”

“Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend.”

“One of the important factors behind the fluctuation between bull and bear markets, between booms and crashes and bubbles, is that investor memory has to fail us – and fail universally – in order for the extremes to be reached.”

“The pendulum of investment psychology is constantly fluctuating between optimism and pessimism, between greed and fear, between credulousness and skepticism, between risk tolerance and risk aversion.”

“A chief cause of crises, panics, runs on banks, etc., is that risks are not independently reckoned, but are a mere matter of imitation. A crisis is a time of general and forced liquidation.”

“Bubbles are born from extrapolation.”

“Bubbles are always justified with ‘this time is different.’”

“It is easy enough to burst a bubble. To incise it with a needle so that it subsides gradually is an operation of undoubted delicacy.”

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.”

“As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.”

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready. You won’t do well in the markets. If you go to Minnesota in January, you should know it’s gonna be cold. You don’t panic when the thermometer falls below zero.”

“The man in the street associates the acquisition of wealth with rising markets; failures, ruin, depression, panics with falling markets.”

“The average trader is naturally a chronic bull. It is human nature to prefer optimism to pessimism.”

“Taking risks today for tomorrow’s reward is both the most challenging and difficult of tasks. Unbridled optimism must be tempered with reality.”

“At the root of all financial bubbles is a good idea carried to excess.”

“When the next fear-inspired panic occurs, investors’ finger-pointing will almost certainly be aimed outward, while a good part of the blame should instead be directed inward.”

“People seeking answers to why the market plunged usually emphasize the immediate events that precipitated a selling panic, when in fact these events are but minor symptoms of much more severe underlying problems.”

“I got three ideas out of Ben’s book that have been the cornerstone of everything I’ve done, which are to look at stocks as part of a business rather than simply little things that go up and down. And then I took to heart his Mr. Market saga, which I think is vital to having the right attitude toward market fluctuations. Then third, the margin of safety.”