Greed and fear are distant financial market cousins, and when greed’s ascent plateaus, the descent of fear gathers momentum, often at a ferocious pace. We witness in our daily activities an unfortunate discord co-existing with one another, a dismissal of civility whereby we affirm our differences by seeking out like-minded people, places, media sources and experiences.
That is also true of the greedy and the fearful among financial market participants. Adulation for select CEO’s, rationalizations for certain business models, novel approaches to valuation – often in favor of largely speculative enterprises (ahem, the retreat in SPACs, crypto, MEME stocks, anyone?) – fosters even greater animal spirits among the converted. And suddenly, all that glitters turns to rust; pessimists, armored with proudly tarnished vests, occupy the arena, espousing the end of the world as we know it. I’ve always been fascinated by the world of behavioral finance, and the excess returns of 2020 and 2021 followed by the severity of the year-to-date retreat is a behavioral case study begging for analysis by the Harvard Business School.
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