Fear and Greed

“We have nothing to fear but fear itself.”

Franklin Delano Roosevelt

“Greed is good.”

Gordon Gekko (Wall Street)

Sentiment on Wall Street is everything. If there’s a feeling that things aren’t going so great, the herd mentality takes over and a feeling of fear begins to dominate. People sell stocks, prices drop, and people see the prices dropping, triggering that same herd instinct all over again.

On the flip side, if sentiment is too favorable, no price is too high for the most coveted companies (or cryptocurrencies). Greed gets into the driver’s seat. The feeling that the good times will never end and trees grow to the sky begins to form bubbles, bursting and then triggering fear once again.

This ultra-simple breakdown—that greed and fear are the only two games in town, and everything can be explained by those two things alone—is overly simplistic even for stock market investing, but if we’re careful enough, I believe we can use that same framework for all human behavior.

As usual, I’m not the first to come up with this observation. Some 2300 years ago, a Greek philosopher named Epicurus was thinking along similar lines.

That name might sound familiar even if you never learned much Greek philosophy. That’s because we use the word epicurean today to describe someone who loves good food and drink, and maybe even some of those other simple hedonistic pleasures in life, too.

This is a weird twist on what Epicurean philosophy actually has to say, only partially reinforced by the ideas of Epicurus himself. Central to his idea was this spectrum I’m describing, where on one end is fear and the other end is greed, but Epicurus went even further.

He described where greed and fear come from. Deep down inside, we all want to feel good. Naturally, we seek activities that make us feel good, and avoid those that make us feel bad. This pleasure-seeking, pain-avoiding state is constantly balanced by greed (for pleasure) and fear (of pain).

When stock investors notice that shift in sentiment and sell, they’re afraid of the pain of loss. Similarly, when shares of a meme stock go to the moon, you’re looking at greed for pleasure being in control.

Epicurus wasn’t a fan of greed, but greed could lead to fear. Fear of pain was natural and sensible, but Epicurus realized that if fear was in the driver’s seat for too long, it could lead to horrible results.

While Epicurean pain avoidance is healthy, excess fear is what can lead to often adverse, irrational actions like stock market selling or yelling at your partner about finances, or any number of other poor decisions you’re destined to make when you can’t think clearly.