“Curb your enthusiasm.” Easy to say, hard to do!
At the end of the day, enthusiasm moves stocks. Meme stocks like AMC Entertainment (NYSE: AMC) and Blackberry (NYSE: BB) rocketed up as the Reddit community all banded together and bought these dumpster stocks with great eagerness.
Back in the late 90s, investor enthusiasm for tech stocks was so rampant and reckless that Fed Chair Alan Greenspan coined the term “irrational exuberance”. I’m quite certain that Alan would deem the rash of Meme stock enthusiasm “irrational”.
That’s how we humans roll. We tend to overreact. Terms like “FOMO” (Fear of Missing Out) have even been coined to describe trader humanity. FOMO drove Bitcoin up 850% from $6,890 to its all-time high of $65,520 in a year without any real rationale behind the move.
Traders can also be enthusiastic about dumping stocks… like Bitcoin, which dropped over 50% from its all-time high in a month. It happens with stocks. It happens with real estate. It happens in anything we humans invest in.
Enthusiasm can be based on hard data like earnings. It can also be purely emotional. It can be both.
The bottom line is it doesn’t matter what the source of the enthusiasm is. Either way, if we can detect the sentiment and ride the wave, we can cash in.
And that’s a much harder science then you might initially think…