A reverse scenario also holds true. For example, sharp declines in a company's stock price produces a reaction of fear in most people as they see their stocks decline in value. But if you are experienced enough, you will see that more profits in the market are made by buying when there is fear and panic in the market or your stock candidate, as the emotions of the day may be unnecessarily pushing the stocks downward to a bargain level. The point to buying a good company, whose stock is under pressure where you might be feeling fear, is to make money by selling when the market mood is more buoyant. The firm may be an otherwise good company whose stock is overreacting to unfavorable news or the decline in the general market - the stock sell off may be only temporary. You will have to weigh company specific factors. You can also weigh the analyst opinions out on the Street - are they divided, or are they mostly positive or negative? Usually a one sided analyst consensus is the wrong way to go. Remember, when most all players are on one side of a trade, consider taking the other side.

One of the most glaring examples of buying when the prevailing opinion is on the sell side was illustrated during the real estate and banking crisis of the late 1980's and early 1990's. The atmosphere for banks and real estate was quite poor, to say the least. Banks were failing left and right - the bank where I held some of my investments had only two banks on their buy list. A common expression of real estate developers and investors, some who were going or close to broke at that time was "stay alive till ‘95".

In my own mutual fund holdings, most which I have held for well over a decade, there was a period during the 1995-1999 technology stock euphoria when one of the fund companies where I invested actually lost customers because the fund manager chose not to buy increasingly overvalued tech stocks. After the market broke in 2000 and technology stocks crumbled, this company's funds performed well and garnered positive reviews and attention for their manager's long term value approach. An inflow of new investor money came into the fund. And so the choices of investors can change over market periods of optimism and pessimism, and be influenced as much by emotion as by common sense. The lesson to this story is that it often pays to act contrary to the euphoria or crazes of the day and not participate, as they almost always end poorly.

About the Author

John Reizner was first exposed to financial markets when he started reading the stock quotes out of the newspaper to his businessman grandfather, who was legally blind, when he was about ten. Papa always told him: "Buy Triple A" (the best stocks). Later, John studied economics at both Vassar College and Columbia University, where he became intrigued by the link between psychology and economic theory. His current e-book, A Way to Wealth – the Art of Investing in Common Stocks, is available at his website, http://www.ReiznersWay.com.

This article contains the opinions and ideas of its author and is designed to provide useful information to the reader on the subject matter covered. The author may or may not have current positions in the investments mentioned in this work, and the author may from time to time make investments in a manner that is not described here. Past performance is no guarantee or prediction of future results and any investments made, based on the opinions and ideas contained in this work, may or may not be successful. The strategies contained herein may not be suitable for every situation, and the author is not engaged in rendering legal, accounting, investment advisory or other professional services.