Disclaimer: * This may contain affiliate links* I’m not a licensed investment adviser. Also, I’m not a tax adviser and this is NOT tax advice not investment advice. Please talk to a licensed investment adviser before making any financial decisions. Please talk to a licensed tax advisor before making any tax decisions. Additionally, I am not an economist, however, I am an avid investor and have studied the markets. In addition, I have studied the causes of past recessions as a hobby for a few years.*
The stock market is driven by two emotions: fear and greed. Fortunately, if these emotions are used wisely, they can yield positive financial results. On the other hand, if they are not, it can lead to financial ruin. Warren Buffet is credited with these words, “Be fearful when others are greedy, and greedy when others are fearful.” Over the past half-century, the ‘Oracle of Omaha’ has created wealth using these two emotions to his advantage.
There has been a lot of talk of recession. CNBC has printed a new article nearly every day about this topic. However, it is a normal market fluctuation.
“Be fearful when others are greedy, and greedy when others are fearful.”
Warren Buffet
Greed plays into it when people are trying to make as much money as possible. This happened in the ‘dot-com bubble’ in the late 90’s to early 2000’s. Every investor was trying to get a hold of a stock with a ‘dot-com’ in the name. A similar thing happened in 2008 with the housing market, on behalf of the banks. They got greedy and began issuing mortgages that could not be repaid.
Fear plays into it when people stop investing or pull out money because of possible impending recession. According to an article written by Joe Cox on 10/12/2019, people are pulling money out of the market to place it in ‘safe’ money market accounts, despite of their low-interest rates. However, with 2008 still fresh in many minds, it feels like the safest course of action.
Now, my question is, if we know a recession is bound to happen because it is a normal market fluctuation, are we speeding it up? Unfortunately, our actions of pulling money out could cause a market loss. Of course, this is a simplistic approach. However, if the fear of a recession is driving the market then it is understandable that investors are shy in making further investments. But the question remains, are these actions quickening the onset of a perceived looming recession? And how do we prepare for it?