Greed and fear: Two factors that rule the market

TO DELL OR NOT: The state of the market has left many dumbfounded about what course of action to follow

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Washington: A financial expert from the US said, “This better work!”

He was talking about the Fed's emergency interest rate cut calming investors' fears.

The recent half-percentage-point cut is just one way the government is trying to stop the stock sell-off.

But amid that and other urgent acts, why are investors still running for the doors? We discover that there is a bit of psychology to this.

This is how the events played out in the US economy.

First the government bails out the mortgage industry, then it decided to lend money directly to companies.

Soon the government slashed interest-rates.

All these moves were designed to build confidence and yet the US stocks tanked over the past few days. The same thing happened in the European markets.

Now the financial anxiety is almost palpable.

“I mean you really have to wonder if this is going to get better before it gets worse, or if it is going to do the opposite,” said one investor.

“I think its panic. I think it's like a bandwagon,” said another.

Donald Langevoort is a Professor of Law who studies investor behaviour. He said that greed and fear are the two most prominent emotions on Wall Street. Fear is the most powerful.

Langevoort feels that this is at least partly, a fear market due to the uncertainty about whether government efforts to shore up the economy will work.

“The more we come to the conclusion - 'if I don't get my investment decisions right, my kids don't go to college', 'I can't live out my retirement without being a burden on my family' - those hot-button things, they can very much influence somebody to buy or sell emotionally, rather than sensibly,” said Langevoort.

Experts say once fear sets in, the herd mentality takes over and even professional investors, who see others fleeing the markets, join in.

How does one turn it around? Right from the financial analysts to psychiatrists, experts say don't sell just for the sake of selling.