Fear, Greed and Its Role in Investments

The biggest and most important part of investing in anything is the above emotions. Logic rarely drives the markets especially in stocks and even in crypto. Since crypto is far more volatile than stock markets, the emotional aspect is far more pronounced. Another reason for emotions to be high is that most people who enter this are very inexperienced as such to investing/trading. Investment strategies may evolve, asset classes may emerge or lose importance, and the way we invest may change but fear and greed have always been around and will be there forever.

People play on this aspect to their benefit, especially the ones who want more for themselves. The ones who can control it, are ultimately the winners but even the strongest, most experienced players succumb to it in some form or the other.

The only way to become better, keep a record of each time you give in to fear or greed and put it on paper. Look at that the next time you feel fear or greed.

Eg. if you wanted to buy a coin at price X and the moment it comes to that but the market is showing fear and more downside, you end up moving your price lower, and lower and eventually miss buying! It has happened with so many of us and continues to happen.
Keep a record of how many times you give in to this, and it should reduce as you see this more in your record book to learn for the next time.

Will the market give you the next chance, absolutely it will!

FOMO is another emotion that crypto traders are familiar with. Fear Of Missing Out- seeing the price rise rapidly, lures you into jumping into the trade only to realize most of the time that the price drops. You have to realize that the system is designed to take money away from weak hands, and emotional traders because that is the only way someone else wins!

To illustrate let us take 2014-2021 as a time frame which is not a long time but a short 7 years in the investing world( but is maybe a long time in the crypto world) From Jan 2014: $938 to hit a low of $91 in Feb 2014. That means it lost 1/10th of its value!

Now imagine having invested at $938 and seeing it drop 90% in a month, what is that runs through your mind? If it’s short-term vision and a “get rich quick” mentality that got you in, then you will surely jump ship, take a loss, and blame crypto for being a scam, manipulation, and more. Where did it end Feb 2014? Ans: $574. Even though it’s lower vs Jan but where is it vs $91?

Continuing further on From Feb 2014 it didn’t cross its high till Dec 2016 when it again hit $963 and then it doubled in May 2017 hitting $2800 as a high! The problem is most are seeing and are fed on this: Bitcoin has risen from $200 odd to $2000(10X) in just 18 months or so! They do not dig deep and see this carefully, where months of pain, dilemma, fear, and uncertainty are what was running for almost 14 months.

Another recent example is: From Dec 2020 to April 2020, it went 6x, being 10K to 60K. Before you get excited, have a look at the past, where did it stand and stagnate and even fall drastically during the previous months, and what would have you done had you been sitting with negative gains for months.

Sometimes we need to zoom out and look at the entire picture, not a piece of it that is most attractive. Investing is always about being patient, holding back, and looking at the long-term horizon, which unfortunately most people in the crypto space are not used to and don’t want to learn to.

Speculation is very high, traders who want to earn daily, people who see this as a ticket to their dreams, and of course the market manipulators who can do their best to have it their own way minus any regulatory authorities looking down on them, all play their role in this wild ride and if you are ready for it just remember that the most important factor in this is YOU and not anyone else( something an experienced person told me at the beginning itself)

There is no sure formula to overcome fear, greed FOMO but keeping a written record like a journal of when is that you succumbed to either and what was it that led you to the way you can revisit it when you feel those emotions again and keep yourself in balance. The lure of the quick buck has been there since times immemorial and has caused the downfall of so many, it keeps repeating itself in different ways in all eras.

To know why so much fear and greed are rampant is easy when you take a quick look at the returns Bitcoin Price has risen from being even $!0 to $64,000 in a decade. No other investment has given this return in our history in this time period. This makes people think, in the next 2 years, they would make 10X their money! They forget one key aspect and check the kind of drops it had since then. Each time it went through a major correction, it fell 80% from its peak values.

It’s easy to say and think, that I wish I could have bought at the low and sold at the high, but realistically that is impossible for even the most seasoned investors and traders. Anything that emerges as a breakthrough new tech has low adoption, and high scepticism, and the early adopters who take a huge risk always are the maximum gainers in the long run.