hey guys it's Theodore and today I want to welcome one of my YouTube creator
friends who specializes in the financial sector and the stock market and today
he's gonna teach us about the psychology of the stock market now I've watched
Ryan grow from 5,000 subscribers to almost 100,000 subscribers in a very
short period of time and it's simply because he's one of the most
hardest-working value giving and smartest people I know I highly
recommend checking out his channel if you find the following presentation
interesting my name is Ryan Scribner and today I'm going to be talking to you
guys about the psychology of the stock market now before we get into this video
I just want to thank practical psychology for giving me the opportunity
to come on to the channel and talk to you guys about one of my favorite topics
surrounding investing and the stock market now there have been entire books
written about the psychology of the stock market so I'm not going to be able
to cover a lot today but I'm going to get into some of the basics of the
psychology of the stock market and how the stock market is controlled by
emotions so most people think of the stock market as a place of numbers where
you see the price of stocks over a period of time and at some points
they're rising and at some points they are falling but today I'm going to show
you guys how the stock market is largely controlled by emotion not only that but
two emotions specifically those are fear and greed the reason why many people end
up losing money in the stock market is because they make emotional decisions
when it comes to investing while it is controlled by emotions you want to have
an emotionless strategy when it comes to investing and making money in the stock
market so I'm gonna go ahead and show you guys how the emotions of fear and
greed affect the prices of stocks and of the market as a whole so first of all
guys I'm gonna give you one of my favorite quotes by a man named Benjamin
Graham he says that the stock market is essentially a pendulum forever swinging
between optimism and pessimism neither of which are sustainable so at any given
time the market is entering a time period of unjustified pessimism or
unsustainable optimism and these are driven by fear and greed which are the
precursors to supply and demand so let me go ahead and explain how this works
when people get greedy they're going to start buying stocks left and right
they're seeing other people making money in the stock market
and as a result they begin to follow the herd mentality so you see a lot of
people moving into a particular asset and as a result the demand rises for
that stock so as the demand rises the supply can't keep up so the price is
naturally going to climb at a certain point this asset is pushed to a level of
unsustainable optimism and at that point many people begin to take profits they
start selling and as a result you're going to see the demand taper off and a
supply enter the market now once that supply exceeds the demand for that stock
you're going to see the sentiment of investors or the emotions of investors
switching from that of greed to fear and once investors become fearful they're
going to start selling because they are afraid they're going to lose money that
is when you're going to see the markets start to go in the other direction that
is when you're seeing a large supply going to the market investors are
fearful and they're going to sell and the price is going to fall now
eventually the exact opposite is going to take place and the price is going to
reach a point of unjustified pessimism at that point you're going to see buyer
step up to the plate they're gonna start scooping up shares at a bargain price
and as a result the demand for that stock will increase and once the demand
exceeds the supply you're going to see stock prices start to climb again this
right here is that pendulum that Benjamin Graham is talking about so
maybe you've talked to someone who has invested in the stock market before and
maybe they have told you that the stock market is a losing game or that everyone
loses money in the stock market that is not true and I want to give you guys a
few reasons why most people who invest in the stock market invest with an
emotional strategy and as a result they are the ones who end up losing money and
for them the stock market is a losing game but the people who learn to invest
with the sound strategy and leave their emotions at the door are the ones who
are successful when it comes to investing so the first reason why many
people lose money in the stock market is because they invest in stocks out of
excitement okay I'm sure if you've talked to anyone about the stock market
and you've asked them for advice they tell you to buy low and sell high and
you probably say of course common sense but the thing is that is
the exact opposite of what most people do when they invest in the stock market
they're going to be watching a particular asset or a particular stock
they're gonna see that price climbing higher and higher and higher they're
gonna see their friends making money and as a result they're going to buy into it
out of the emotion of excitement well what's going to happen is eventually
that price is going to reach a point of unsustainable optimism and then you're
going to see that supply hit the market as investors who got in early on are
going to be taking profits off the table that is when you're going to see that
trend reverse and all the sudden loss aversion is triggered that is when
people are trying to get rid of something because they don't want to
lose more money than they already have they're afraid of a larger potential
loss so they would rather take a smaller loss today now why do people do that
that is due to the fact that the feeling of a loss is two times more painful than
the excitement of a win so a loss is much more painful than the good feeling
you get when you have a win or when you're right or when you make a good
investment so many people follow the strategy of cutting their losses after
they bought something out of excitement at the top of the market so at that
point they buy high and they sell low that right there is the number one
reason why people lose money in the stock market they're doing the exact
opposite of what they should be doing which is to buy low and sell high now
the other reason why many people lose money in the stock market is because
they confuse investing with their desire to gamble everyone out there has a
hardwired desire to gamble and it is stronger in some people than it is
others but everyone out there likes the idea of getting a large return in a
short period of time this is possible through gambling or in the stock market
we call this speculation now while these high risk investments have a higher
potential return you also have the potential to lose a lot more money if
not all of your money so successful investors understand that investing is a
marathon and not a sprint if you're looking for a high return if you're
looking to gamble keep your gambling at the casino and don't confuse investing
with your desire to gamble now the third most common reason why people lose money
in the stock market is due to the fact that people follow the herd this is
called the herd tality so this is one of my favorite
sayings out there when it comes to the stock market they say that the Bears
make money from falling stock prices Bulls make money from rising stock
prices and the Sheep gets slaughtered so when you follow the herd and you're
among the herd and you're moving with the Sheep you're going to get
slaughtered these are the group of people that are moving the prices in the
stock market and the Bulls and the Bears are capitalizing on either that
unsustainable optimism or that unjustified pessimism all of this
movement in between is thanks to the herd so while we need the herd in order
to move prices on the stock market they are the ones that are not going to be
making money so why do people follow the herd why would you become one of the
sheep in the stock market the main reason is because people do not have
confidence in their own ability to make decisions so as a result they rely on
the decisions of others or they listen to the recommendations of Wall Street
analysts and if you listen to what Warren Buffett says about Wall Street
analysts he says they are out there to make fortune tellers look good so if
you're following these recommendations you might be right some of the time but
you're also gonna be wrong a lot of the time as well because at the end of the
day it is an educated guess so that is what the second chart is down here this
is going to demonstrate what happens when the herd moves into an asset and
what's going to happen here is a bubble is going to form
so once the herd moves into an asset you're going to see people buying it
left and right everyone and their brother is going to be buying this
particular thing and as a result the demand for that particular asset is very
high so you're going to see the price of that particular asset climb and climb
until it reaches an unsustainable level at this point a bubble has formed and
the asset is trading solely on a speculative basis so right now that
particular asset is overvalued and any one thing could pop that bubble so
what's going to happen something is going to trigger a sell-off you're going
to see that bubble pop and all of that value is going to be lost the price is
going to fall a lot faster than it climbed because like we said the emotion
of fear is a lot stronger than the emotion of greed people are afraid to
lose money so when they see stock prices falling they're gonna sell a lot faster
than they bought so once the bubble pops you're going to
see that asset go into a sell-off and a bench
the taper off and then with time you will likely see the asset begin to
appreciate in value but at a sustainable level it's not going to be something
that looks like this where you see a rapid appreciation in the price of that
asset if you're investing you want to see sustainable growth over time not
something that indicates that this may be a speculative bubble
so just to recap if you want to be a successful investor you have to invest
without using your emotions you have to leave your emotions at the door because
people who invest with their emotions are going to make these decisions
they're going to follow the herd they're going to buy things out of excitement
and sell them out of fear and as a result they're going to lose money in
the stock market following the words of Warren Buffett you're going to be greedy
when others are fearful and fearful when others are greedy so what that means is
when people are fearful and stock prices are down here that is when you're going
to be greedy that is when you're going to be loading up on shares and then when
people are greedy and people are buying stocks left and right and the price is
climbing that is when you're going to be fearful that is when you're going to be
selling so you want to buy from the pessimists and then sell to the
optimists you want to buy low and sell a high and do the exact opposite of what
everyone else out there is doing when it comes to the stock market if you want to
be a successful stock market investor anyways guys that's all I got for this
video this is a very basic explanation of how the stock market is controlled by
the emotions of fear and greed if you guys want to learn more about investing
in the stock market I do have a youtube channel dedicated to investing and other
financial topics however just recently I have released my
stock market mastery course this is a 17 part to 12 hour course where I teach
people everything I have learned about investing now I'm going to be giving the
practical psychology viewers an exclusive discount so make sure you guys
use the link in the description if you're looking to take advantage of this
offer and learn how to be a successful investor and learn how to invest with a
strategy and not relying on your emotions I thank you guys for taking the
time to watch this video and I hope you have a great rest of your day
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