The Masses

Of the three indicators, we feel that the mass psychology of investors is often the most critical indicator because once momentum is in effect it takes some time for it to change direction. When the herd is stampeding in one direction, the wise investor is looking for a new direction while riding it out.  

Psychology of the masses is very different from that of the individual. We have seen this phenomena throughout our history - symptoms that we have seen and see every day range from simple rumors, that expand to riots, to the overthrow of dictators, and sometimes to war. A common emotion expands across a broad spectrum of people with no specific communication lane shared. Anyone, taken as an individual, is tolerably sensible and reasonable - as a member of a crowd, he at once can become erratic and reckless.

What we do is review historical patterns in the markets because as humans we tend to react to similar things in similar ways. Therefore, it is key to understand how the masses are most likely to respond to events in our very complex and changing world.