Traders laud the “contrarian” mentality. Warren Buffett famously said “Be greedy when others are fearful and fearful when others are greedy.” Easier said than done for the vast majority of stock traders. And when I’m trading stocks, those are the people I am up against. On every stock trade there is someone who wants to sell and someone who wants to buy, at least at a particular price. Both tend to think the other is an idiot. In simple terms, the person who is selling thinks that she is getting out just in time while the person buying thinks that they are about to make good money.
Because the actual transaction is faceless, I can’t practice my usual people-reading skills or manipulation, but I don’t need to. I understand mass psychology. And the truth is that the market doesn’t really reflect some magical perfect valuation of a stock under the efficient market hypothesis. It reflects the mass consensus of how actual individual investors value the stock. It is the sum total of everyone’s hopes and fears about what a company is capable of doing. Preying on people’s hopes and fears is my métier, even en masse. To my colorblind eyes, I see these features more starkly than anything else.
Given a choice of hopes and fears, preying on people’s fears is the better bet by far. Hope is too ethereal. People are too unpredictable when acting on hope. I’d rather rely on their fear, but even that is tricky. When the market spooks, it can be as senselessly destructive and difficult to exploit as a stampede. When I trade stocks the main thing I am focused on is not people’s fear of losing what they have, but fear of losing out—of having missed an opportunity to make millions. I look for stocks that have the visceral pull of get-rich-quick schemes.