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It Is
an old phenomenon but one that has only been
brought to light recently. It is something that is
encoded in all beings, we tend to feel comfortable
doing things together. One can even see this in
other animals, a flock of birds a herd of beasts,
a shoal of fish etc they all seem to follow a
leader.
In essence mass psychology is nothing but group
behaviour, where by the masses feel comfortable
doing something simply because they are able to
draw comfort from the fact that there are many
others like themselves doing the same thing.
The way to profit from this phenomenon is to do
something that is contrary to our upbringing and
most of our cultures and that is to resist the
herd mentality and try to be a leader. In any
crowd, or group behaviour situation, the ones that
lead are the ones that draw all the benefits,
while the ones that follow blindly are the ones
that take all the risks. This is very clearly
illustrated in the stock market. Lets take the
internet era of the 1990’s.
The leaders who had vision knew immediately that
this was something that would revolutionize the
way information was transmitted and the way the
consumer would finally move from the passenger
seat to the drivers seat. They took positions in
these stocks as early as 1994 to early 1995, with
the majority taking stakes in 1996, the masses
only began to awaken to this phenomenon in mid to
late 1998, by 1999 there was a feeding frenzy as
everyone simply piled in.
The leaders were alarmed at this behaviour, as
they should have been, since this frenzy was not
sustainable. Knowing that the end was near they
started to sell by the end of 1999 and move their
assets into cash and bonds, while the feeding
frenzy continued. In march 2000, we started to
correct by the end of the year the main up trend
line was violated and the market was ready to
crash. By 2002 the market had lost more than 70%
of its value and many of the masses who had
momentarily tasted wealth were reduced to a state
of a poverty that they could not have envisioned a
few months back.
1) The leaders represent less than
2% of the population yet take in more than 90% of
the profits. Getting to this stage is not easy as
it involves changing ones ingrained modes of.
2) You have to learn that whenever something is
popular the end is very near
3) That the time to take a position or start
something new is when it is viewed with extreme
negativity and disdain.
4) You have to learn how to fight the fear of
selling out to fast after taking a position,
remember it won’t just go up., most likely it
could even go down a bit more or move sideways for
months or even a year. The one area you can draw
comfort from is this , the longer the sideways
action the more powerful the upward move will be
when it finally transpires.
5) Keep extra money to take additional positions.
6) In all likelihood you will have a 50-100%
retrenchment in the first stage of the bull
market, meaning that your shares could double only
to fall back to the original value you purchased
them at. This is usually known as the shake out
stage, whereby the weak hands are forced out of
their positions and end up selling at rock bottom
prices. Hold and the rewards are extremely huge
7) When the investment suddenly
becomes popular be on guard and perform simple
trend analysis on all your holdings, once the
super main up trend. Wait patiently for the next
opportunity to show up, there is always another
opportunity.
This is meant to be a brief
introduction into the very esoteric but highly
rewarding field of Mass psychology, to do an in
depth analysis would take months. When one
combines Mass psychology with Technical analysis
you truly have a very potent weapon that can be
used very effectively to position oneself in the
right investments and consistently be on the right
side of the market.
The term
contrarian investing
was most likely derived from the study of mass
psychology as it basically means taking a position
that is completely at odds with the masses.
With that in mind, mass psychology has once more
provided a new opportunity in the financial
markets for the astute individual willing to take
an early position and wait. The sector that is
going to explode in the next few years and which
has already seen very nice gains will be the
commodity sector, which will be spear headed by
Gold and Silver.
Click on the following link for a more in depth
look
the coming silver and gold raging bull market
.
As they say a picture is worth a 1000 words. Be
sure to read the section on why
Gold Is the Ultimate Currency
and why the powers to be fear Gold so much.
Now that you know the basics of how to profit by
using Mass psychology to your benefit, make sure
you also read the section on
contrarian investing and
one key factor which is important to all stock
market traders and investors,
portfolio management.
Without
portfolio management.,
even the most successful trader is doomed to fail.
The leaders represent less than 2%
of the population yet take in more than 90% of the
profits. Getting to this stage is not easy as it
involves changing ones ingrained modes of
behavior. Sol
In
an extensive reading of recent books by
psychologists, psychoanalysts, psychiatrists, and
inspirationalists, I have discovered that they all
suffer from one or more of these
expression-complexes: italicizing, capitalizing,
exclamation-pointing, multiple-interrogating, and
itemizing. These are all forms of what the psychos
themselves would call, if they faced their
condition frankly, Rhetorical-Over-Compensation.
James Thurber 1894-1961
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