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Value Investing: Tools and Techniques for Intelligent Investment by James Montier

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Chapter 13. The Psychology of Bear Markets[13]

  • It is a cliché that markets are driven by fear and greed. However, it is also disturbingly close to the truth. Having spent the best Part of a decade exploring the psychology of bull markets, it makes a refreshing change to examine the drivers of bear market behaviour.

  • Fear seems to lie at the heart of the psychology of bear markets. The bad news for us humans is that within the brain emotion appears to have primacy over cognitive functions. Our brains consist of two different (although interconnected) systems. One is a fast and dirty decision maker (the X-system), the other is more logical but slower (the C-system).

  • The X-system's output is often unchecked (or at least checked only too late) by the C-system. For instance, if I were to place a glass box containing a snake on the table in front of you, and asked you to move as close as you could to the ...

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