Block 18: The Pride Bias
Pride is an insidious thing. After all, pride goeth before a fall. When the market is doing well, everyone looks like Warren Buffett. Everything investors touch turns into gold. But like Warren Buffett is fond of saying, “You can only tell who is swimming naked when the tide goes out.” That is a strange way of saying that a market crash reveals who has fallen prey to the pride bias.
The markets, as we have, established are fairly emotional. It is almost as if the market is a big pendulum swinging between fear and greed. When the market goes down, fear is abundant. But when markets are hot, greed is plentiful. However, as investors, we are to be wary of either extreme. When we feel that there is a lot of greed, we should check our own greed levels. And when we notice a lot of fear, we should ask ourselves, “What is more important to me; my comfort level or investing to make tomorrow better than today?”
Be aware of either extreme. It can be difficult to tell when you are experiencing an extreme because most people only realize it when it’s too late. This is not to say that you should take all your money off the table when you sense some greed in the air. As we said, that is timing the market and it has been proven to be an arduous task. All we are trying to say is that it might not be a good idea to double down on sketchy biotech stocks when the market is hot. That is gambling, not investing.