The Fear of Investment

Looking at what’s going on with investment markets at the moment, it can be a challenging time. I may be an adviser, but I am also an investor so when markets fall, I hurt too. It’s important to realise this and hopefully, this article will provide some comfort.

We all know that when markets fall, it’s a great time to invest and buy into a fund at a low price. It’s the old quote about “buying when there’s blood on the street”. I always keep a daily eye on what the NZX50 Index (NZ’s main index) is doing but I haven’t checked my KiwiSaver or other investments for about three months as I know markets have fallen. I also trust my chosen fund managers to do their job and I’m investing for the long term.

CNN Fear & Greed Index

One thing I did come across recently was the CNN Money 'Fear & Greed Index'.

What this does is track seven indicators of investor sentiment (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options. Junk Bond Demand, Market Volatility and Safe Haven Demand). 

Some of these terms may not be familiar to you, but that doesn’t matter. The point is investors are driven by two emotions, fear and greed. Too much fear can sink stocks well below where they should be; but when investors get greedy, they can bid up stock prices way too far.

For each indicator, the index looks at how far they've veered from their average relative to how far they normally veer. All the indicators are put together for a final index reading.

The most well-known factor is the Volatility Index. When stocks fall, the Volatility Index normally goes higher and the Fear and Greed Index swings towards fear. When stocks rise, the Volatility Index goes down and the Fear and Greed Index swings towards greed.

Extreme fear can be a sign that investors are too worried, therefore representing a buying opportunity for shares. When investors get too greedy, that could indicate that stocks are due for a dip.

The Big Conclusion!

As Warren Buffet once said, “Be fearful when others are greedy and greedy when others are fearful”.

So, ignore your KiwiSaver account values, focus on your long-term plan and let your investment managers do their job!