[Inside Chodong] 'How to Face a Bear Market'...Just Swinging Between Greed and Fear Like a Pendulum

[Asia Economy Reporter Lee Seon-ae] "The psychological fluctuations of the stock market are similar to the movement of a pendulum. The midpoint of the arc drawn by the pendulum best explains the pendulum's position 'on average,' but in reality, the pendulum spends very little time there. The pendulum is always moving toward one extreme of the arc or moving away from it. However, each time it approaches an extreme, it inevitably must return to the midpoint soon after. In fact, the energy needed for the reversal is supplied by the very movement toward one extreme."

This is from the book "Howard Marks on Investing and Market Cycles" by Howard Marks, the legendary Wall Street investor and chairman of Oaktree Capital.

Currently, the stock market is collapsing. It is in a state of extreme fear. As market volatility increases, panic selling fear is growing over time. Investors are also leaving. The decrease in stock trading volume and deposits is evidence of a money move phenomenon toward banks and others. Essentially, it is collapsing due to 'fear.' The market is filled with fear. No one yet knows where the bottom is. In their minds, cutting losses now seems like the best option.

They are at a loss about how to deal with the downturn or whether to endure it. At times like this, some advise recalling the pendulum theory. The reporter also believes this is perhaps the most important theory to remember in a stock market entering an extreme fear phase. Howard Marks mentioned that he realized the market often moves driven by greed or fear, and when truly important times come, many people leave one end of the rope and move to the other.

In his book "The Most Important Thing," he also advised paying attention to stock prices. He pointed out that the market has its own psychology, and changes in valuation parameters mainly caused by shifts in investor psychology are the primary reasons for stock price changes. This psychology also moves like a pendulum. He said, "Stocks are cheapest when everything looks bleak," adding, "At the bottom in a gloomy situation, only a few sharp and bold bargain hunters hesitate to buy stocks."

The market moves like a pendulum between greed and fear. Bubbles build up and greed overflows, and only after the direction changes is it proven that it was greed and a bubble. In a bull market, prices rise excessively, creating bubbles. However, in a bear market, prices fall more extremely than expected, triggering panic selling, and psychology becomes filled with fear. But bargain hunters target this time. It means the best time to buy is when the market is bleeding. However, no one really knows if this is the bottom. Most experts agree that it is still a time to avoid the falling knife. Still, it is hoped that no one will be so overwhelmed by fear as to abandon 'investing.' It is hoped that people will not be dominated by 'fear psychology.' On Wall Street, such advice often comes out: leaving the market is a 'mistake.'

This content was produced with the assistance of AI translation services.