Dear Dick
articles about wide ranging psychological issues
from "The Local Bulletin" (Brisbane Australia)
by Dick Rigby
©all articles are copyright 2006

December 2003
The psychology of the stock market has always fascinated me. One thing that struck me as odd is when a company announces a really good profit result. Contrary to expectations, the stock price will sometimes go down.  The experts tell us it is because the market “anticipated” the company profit before it was announced.  Investors are working to a strategy.
I don’t pretend to know much about the stock market, but I do know a little about the psychology of trading. Our in-built instinct seems to be to buy on a bull (rising) market and sell on a bear (falling) market.  In other words, when things are looking good, we buy.  When things are looking bad, we sell.
However, the successful investor seems to reverse this strategy.  They buy on a depressed market and hold while the market is recovering.  A friend of mine bought some shares in February of this year when the war on Iraq was brewing and the market was depressed.  He is now about 18% ahead.
Most investors were cautious in February because of the coming war.  They wanted to hold off investing until things stabilized a bit.  What happened was the market headed up as soon as the war started and hasn’t looked back since.
In the booming stock market of several years ago, it seemed that anything that ended in “.com” was going to make heaps of money for everyone.  Some people did make money by buying such speculative stock and then selling them when the price went up substantially.  However, many investors got burned when the stock went down to it’s true value.
As we all know, what goes up must come down.  But some people get infected with “Gambler’s madness”.  They do not make a realistic assessment of risk.  Their eyes fill with dollar signs and they hope for the big win.  These people will follow the mob and may buy stocks at over inflated prices.  When the market corrects, they get hurt.  Some people have lost squillions on tech stocks in the last five years. 
It’s all about realistic risk assessment. The investment advice that I have received is to buy when others are selling. This buying has to be based on some realistic risk assessment that the market is being over-sold because of panic selling.
There is no fool proof system, but it seems that heading in a different direction from the rest of the herd can pay off sometimes.