The World's best investor and 2nd richest man Warren Buffett once said "Be fearful when others are greedy and be greedy when others are fearful". When most people are greedy in stock market (and it's true in other markets like real estate), the demand goes high, and vice versa, when most people are fearful, the demand goes down and so the price. Stock markets are primarily driven by psychological and emotional factors in the short term and value investing in the long term. Most investors typically swing like a pendulum, between euphoria aka greed and fear, and, consequentially, between over-valued and under-valued market. Most of this euphoria is driven by financial news channels because they want and need your attention fixated on them all the time since that means more advertising income for them. Also, most Indian stock market investors are misguided by brokers to invest in high frequency trading products like intraday and highly leveraged products like F&O vs long term investing products. Intraday and F&O generates more than 95% of trading volume on NSE and BSE exchanges by some estimates. Intraday and F&O are highly lucrative for brokers but not for average Indian investors. These factors affect most of us including renowned experts in their field; even Einstein lost money in stock market!! Buffet is merely pointing out these important psychological and emotional factors in play.
If you do your homework and find opportunities in areas where the majority are fearful (on one extreme of the pendulum), you can be opportunistic before the greed returns and profit from it. More often, it takes time for pendulum to swing in the other direction and you have to be patient during that period. This is where buy and hold strategy aka long term investing or famously known as multibagger investing comes into play.
MultiBagger investing requires deep understanding of stock market and proven research and analysis experience with macroeconomics, politics, behavioral finance, company fundamentals (P&L, Balance Sheet, Cash Flow statements), technical s (charts) etc. You can do all of this if you have time on hand and willing to necessary skills required which often takes 8-10 years of experience or subscribe to a proven research and advisory service.
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