Psychology and the Crowd mentality

Las Vegas, Nevada 12/12/2009 03:45 AM GMT (TransWorldNews)

Las Vegas (CRWENEWSWIRE) DEC. 11, 2009

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Are investors really as shallow as the media portrays them?


When there is a rise in the market, the media will always find some reason for the rise, something that made investors buy, for example today the headlines claim “Stock indexes rose Thursday as a jump in exports offset concerns about an increase in weekly unemployment claims”. Two pieces of information each directly opposed, one positive and one negative, yet investors chose to buy rather than sell.



Yes, a weaker dollar will lift demand for U.S. goods, which become less expensive for foreign buyers when the greenback falls. But in real terms, this should have only an effect on products that are exported, not the broad spectrum of stocks. So why do investors buy on good news and sell when there is bad news or what makes them determine to buy when there is news that is both positive and negative?



Psychology and the crowd mentality is the only explanation, Simon does what Simon sees, when the market is a bear market Investors sell and the sellers will multiply as each sees the market in decline, rather than buy, but when is the best time to buy? When the market is in a decline!



Crowd psychology is a branch of social psychology. Social scientists have developed several different theories for explaining crowd psychology, and the ways in which the psychology of the crowd differs significantly from the psychology of those individuals within it. Carl Jung coined the notion of the “Collective unconscious”.



The main idea is Sigmund Freud’s crowd behavior theory he postulated that people who are in a crowd act differently towards people from those who are thinking individually. The minds of the group would merge to form a way of thinking. Each member’s enthusiasm or apathy would be increased or decreased, as a result, and accordingly as one becomes less aware of the true nature of one’s individual actions. It’s like a stampede, one starts to run and the heard (the crowd) follows.


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