The Power and Psychology Of Stock Market

THE MODERN – DAY SYMBOL OF ECONOMIC PULSE

In today’s world, stock market is the lifeblood of every country’s economy. It is no longer just the playground for the big elephants or so-called bulls and bears of the market. But it now reflects itself as the breath of every common individual who wants to be financially independent or even generate passive income. The digitalization of the stock market via apps like Zerodha, Groww has increased the potential of the stock market. It is not a play but a complete study of psychology, overcoming fear and of course our economy’s health.

WHAT STOCK MARKET REALLY IS?

Coherently, stock market is a marketplace where the retail investors and the big institutions indulge their money in pursuit of astonishing unmatched returns. It provides a platform for the publicly listed companies outstanding shares are bought and sold. When someone buys a share, he/she buy a portion of the company for which they pay a significant amount with respect to the valuations of the company.

That amount is used by the company for their expansion, innovation and sometimes also to repay debts. But beyond numbers and quarterly reports, it is also about emotions and patience. It is something which is far imaginable just like a single rumor can bring a billion dollar move just within minutes.

EMOTIONS AT THE CORE: FOMO (FEAR OF MISSING OUT)

The allure of the stock market lies in the false perception of overnight wealth transformations. Of course, there may be some lucky cases but in most instances it never happens. It has been long said that money has a magic to compound beautifully but slowly. Longer timeframes compound money in an enhanced magical way. Social media and news coverage have misguided a lot of individuals.

“Stock tips”, a “sure shot” company, terms like these are so very manipulative that most individuals suffering from FOMO take uniformed investment decision. Despite the sophisticated economic theories, the driving force of the stock market is: emotions. Emotions like greed, fear and our herd nature are some of the driving forces. In fact, many institutions take their calls on the basis of the market emotion. If greedy then upside is left, if its in fear then their may be panic selling can be observed.

REAL WORLD EXAMPLES OF MARKET PSCHOLOGY

 2008 FINANCIAL CRISIS: Triggered by the collapse of Lehman Brothers, but resulted into the collapse of entire real estate industry. That single ignition of the Lehman Brothers collapse resulted into a sparked chain reaction up to the stock market, banks and even overall economy of the whole world. All of the nations got impacted as I already said that finance is something which interconnects the world. And stock market was also one of the pillars which was damaged.

 COVID -19 PANDEMIC: In March 2020, markets plunged as lockdown started worldwide. The deep sink of the charts of almost every listed company showed that it was the fear of ever retail investor which caused such an unimaginable momentum of downside and then upside. Later the stock market surged more aggressively and optimistically where if we see the returns, it can definitely blow any other investment area.

TACTICS TO COUNTER VOLATILITY

As the term “Volatile” suggest in itself it is an unexpected market momentum triggered by the specific news or rumor. Investors and businesses have learnt some strategies to counter this volatile market over a period of time.

• EMOTIONAL DISCIPLINE: “Never to excite “is the rule. We should not carry ourselves with
  market drop or boom.
• DIVERSIFICATION: Investments across different sectors always lowers the risk. At the time of
  implementation less momentum sectors can be the saviours.
• VALUE INVESTING: “Fundamental is the key”. This is a universal law; a good fundamental
  undervalued stock always has better potential in the surging markets.

CONCLUSION: MORE THAN MONEY, IT’S ABOUT MINDSET

At the very end, the motto of getting into the stock market is to earn more money. Its just a gameplay of mindset, whoever remains strong enough, overcomes fear and master’s patience, wins the game. Stock market showcases our dream towards infinite success. In an era of social media, we should understand where we should invest in, control our emotion, and remember that stock market reward those who think long term.

“Be fearful when others are greedy, and greedy when others are fearful.”
– WARREN BUFFETT

Disclaimer: The views expressed in this article are for informational purposes only and do not necessarily reflect the official policy or position of any organization. If you have concerns or believe there are factual inaccuracies, please write to us at info@primejournal.in or Contact Us.