127. Greed and fear

Hi Gerard,

I read you remembered that I worked for three months as a retail stockbroker. Just like in the movie Wall Street, making equity sales to individuals. I thought it was terrible. We didn’t ask people what they wanted, we just pushed equities on them we wanted to sell. It was a sign of the times. Stocks rose and people were just greedy. You were stupid if you did nothing in equities. In this period, in the late eighties, everybody was bragging with each other that their holiday was paid for by a ride on the stock market. And many equity brokers surfed on this trend and it was all fueled by the greed of private investors.

This is also one of the reasons why markets always exaggerate, they are driven higher by the greed of investors and on the downside, by the fear of these same investors. These two emotions cause the most volatility in stock markets. If you keep calm, you can benefit from this. This is what Mr. J.P. Morgan did (of the big US bank), he bought from people with pale faces and sold to the greedy. The same basic emotions of fear and greed also determine why some people are entrepreneurial and most people are not. If you are an entrepreneur your future is uncertain, which makes most people anxious. Most people would choose a short-term salary increase rather than a potentially higher income in the long term, but with an uncertain outcome.

What is the difference between the individual who decides to start a business and those who do not? Is it because business owners lack an antenna for identifying risks and non-entrepreneurial types are more attuned to risk. That is what I sometimes think, because as you know, a life as an entrepreneur is intense. You are intensely happy when something succeeds, but also intensely worried if something fails. I think there is no business owner who has not experienced long nights awake because he or she was experiencing a period full of setbacks. And yet people choose this existence. What do you think it is that makes some choose this riskier existence?

Regards,

Erik