Mass Psychology & Stock Market Crashes: Embrace Them Instead Of Panicking

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This is a topic that financial writers should cover in more depth, but it also needs to be covered accurately. From the very beginning individuals have been trained to view crashes as disasters, and in doing so, they miss an opportunity of a lifetime. One has to wonder why so many experts almost purposely go out of their way to proclaim the next crash will mark the end of everything. History is not on their side and the average person having failed to examine history is none the wiser. When a lot of noise is made one has to understand that it is being done to redirect one’s attention; the masses always fall for this ploy. Stock market crashes are perfect examples of misdirection; the crowd is directed to fixate on the fear factor and not the opportunity factor. The dumb money always buys close to the top and sells close to the bottom, and the smart money always does the opposite.

Chart was provided courtesy of http://www.macrotrends.net

One of the best ways to determine optimal entry and exit points is to pay close attention to the mass sentiment. When the masses are joyous, then it is usually time to exit the markets and vice versa.

A very strong correction is going to hit this market sooner or later, and our goal is to use the trend indicator to get out close to the top. We are not going bother trying to get out at the exact top; the goal is to get out when the trend indicator starts to flash warning signals, and sentiment levels start to rise. The best lesson you could impart to your kids and grandkids is to teach them view stock market crashes through a bullish lens.

Let’s look at why stock market crashes should be embraced

Before we got off the Gold Standard (1933), it would have been quite risky to view back breaking corrections as buying opportunities. However, if you look at the chart above and you take a long-term view, you can see that every back breaking correction was a mouth-watering opportunity. This will continue to hold true for the foreseeable future. However, we all know that 90% or more of individuals will forget this once the markets start to breakdown and instead they will utter these words “it’s different this time”. It is always different because fear has a way of making something look worse than it is; in reality, nothing has changed, the masses leap without looking, the smart money waits for them to stampede, and when they have sold everything, they swoop in and purchase top companies for next to nothing. The masses remain shell shocked for years as the markets trend higher, then all of a sudden the memory of the last beating fades away and the process repeats itself again and again. This is what’s taking place now and that is why this stock market Bull continues to trend higher. The masses have still not embraced it but they are slowly warming up to it.

Current Sentiment Readings Don’t Support the Stock Market Crash is coming argument

The Crowd is Still not Embracing this Bull Market

Conclusion

Stock market crashes should be viewed through a bullish lens. From a long term perspective, they provide the astute investor with th opportunity to purchase top rated stocks for pennies on the dollar.

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