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Are You Smarter Than a 5th Grader? Which Emotion Is More Powerful?

By Len Penzo

Those who are concerned with managing financial risk understand that, when it comes to investing, it’s especially important to have a diversified portfolio — at least in theory. It’s also important to have an exit strategy in place whenever you take a position on a particular stock, bond or any other type of investment. Why? Because an exit strategy, complete with predefined selling points — at both a profit and a loss — removes those harmful emotions that tend to cloud our judgment, or even hinder our ability to make a decision.

Of course, the emotions I’m talking about are greed and fear. After all, in the world of investing, greed and fear are two of the three psychological motivators that are ultimately responsible for bull and bear markets. (Herd instinct is the other one.)

With that in mind, it’s time for today’s burning question.

Which emotion is more powerful: greed or fear?

If you’re feeling lucky, share your guess with me in the comments section below. I’d love to hear your thoughts.

Don’t worry — I’m not going to leave you in suspense! I promise I’ll pass along the correct answer in this weekend’s edition of Black Coffee — along with a brief explanation.

Photo Credit: dingler1109

November 21, 2013

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Comments

  1. 1

    Jen from Virginia says

    I’d say fear is the more powerful emotion.

  2. 2

    Ben @ The Wealth Gospel says

    Interesting thought. To me, greed is the more powerful. The recent economic collapse happened because of greed. The housing bubble and the subprime mortgage securitization craze set us up for failure. Sure, it was fear that was the straw the broke the camel’s back, but without greed, we wouldn’t have been in the position in the first place.

  3. 3

    Sassy Mamaw says

    This is tougher than it sounds. You are asking which emotion is more powerful. My first thought is fear, because most people feel fear, and IMO fewer people are greedy. But, does greed have more power than fear? Would I be willing to do something I’m really afraid of if the price were right? Probably. That makes greed the more powerful emotion.

  4. 4

    Shaboo says

    I think the answer is greed and I don’t think it’s even close. Greed isn’t necessarily a bad thing because it’s what makes the world go round.

  5. 5

    Jane Savers @ Solving The Money Puzzle says

    Fear for me but I don’t have much money or much potential to earn money.

    If I was earning $100,000 per year and could afford to take chances greed could become a very powerful force in my life. Greed would be coupled with fearlessness because I would feel that I just couldn’t fail.

  6. 6

    Bret @ Hope to Prosper says

    Fear is the more powerful emotion, because it’s one of our basic survival instinct. There is an old scientific observation that people and animals will do more to avoid pain than to experience pleasure. I think that’s true.

  7. 7

    Fehmeen says

    I think fear is more powerful than greed. Even if you’re not greedy for money, you fear you may lose out on a good profit-making opportunity and go on to make poor investment decisions.

  8. 8

    Cloud NIne says

    Fear.

  9. 9

    Carrie Christos says

    FEAR is more powerful. From FEAR sprouts GREED. (Fear of not having enough, fear of own self worth, fear of loss of life or entitlement.)

  10. 10

    Tami says

    Fear, hands down. I think it infuences our choices more than we know.

  11. 11

    J LYnch says

    When financial times are good, GREED is more powerful (think bull market / record market highs). When financial times are bad, FEAR is more powerful (think March 2000 after bubble burst and stock market dropping 2008 through early 2009).

    Human nature says buy more at record highs (!) and sell near bottom (!).

    “Be greedy when others are fearful and fearful when others are greedy.”

    How many investors are rebalancing right now (selling high) from stocks into bonds (buying low)?

    Just asking.

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