Obviously, nothing could be more challenging for an investor than to make investment decisions in a market that has been blighted by a financial crisis of global proportions. Certainly, all those details about liquidity constraints, slowing growth, declining exports, falling corporate profits, increasing job cuts, lower tax collection, and volatile indexes are not for the weak of heart and faint of spirit. However, the tough often get going in a market where the going has got a wee bit tougher. To these breed of investors, where there is a crisis, there is wealth. For they know that financial crises are a part and parcel of business cycles and are the culmination of a period of expansion, leading to a downturn. They know that indicators like easier/tighter money and rising/declining non-domestic reserves, commodity prices and share prices in the cycle are mere signs of a boom or a crunch. In this cycle, what goes up must come down, just as what comes down must also go up.
However, investing in a market that has been laid low by credit crunch requires more than mere guts. It requires uncommon common sense and a penchant for making the most of the available situation. Above all, it requires the willingness to go against the wisdom of the crowd. Behavioral finance theorists are of the opinion that primitive emotions and hormonal impulses are the invisible determinants that influence the market participants' behavior and thus drive the bourse up or down. More often than not, the investors exhibit reckless optimism when the markets soar and equally irrational fear and panic when the markets tank. In short, investors are driven by herd mentality when it comes to investing.
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