[Summary]
Bubble psychology is a psychology in which rising prices invite further buying.
What makes people more likely to fail in bubble psychology is not the lack of knowledge itself, but the fact that they end up justifying hasty decisions afterwards.
In actual investing, we first start by looking at the difference between profit growth and price growth. However, we cannot overlook the fact that it is easy to buy only because the price goes up.
In this article, we will organize bubble psychology not as "knowledge" but as steps to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First things to differentiate based on bubble psychology
When looking at bubble psychology, first determine what you want to judge. The information you need changes depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. Bubble psychology alone is not a factor in making decisions. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Situations where it is easy to fail due to bubble psychology
If we look at bubble psychology as a failure pattern, we first need to make narrow assumptions. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
If you check the following points, things will be much more organized.
| Axis to check | What to see from bubble psychology |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
Bubble psychology can cause you to stumble not only when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Don't decide to buy or sell the moment you see bubble psychology.
- Do not mix your own holding period with the time frame that suits bubble psychology.
- Don't increase your position to recoup your losses
- Don't make a decision just based on SNS or rankings.
The important thing here is not to settle on a single correct answer based solely on bubble psychology. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using bubble psychology as an actual decision material, check at least these five things.
- Can you explain in one sentence the purpose of looking at bubble psychology?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of checking bubble psychology is not to act faster, but to reduce unnecessary judgment errors.
Summary
Bubble psychology is a material for organizing investment decisions. Even if you read it as a failure pattern, treating it as a standalone buy/sell signal will lead to poor judgment.
The points to keep in mind are as follows.
- Decide first the purpose of looking at bubble psychology
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. It is realistic to treat bubble psychology as a tool to pause before buying or selling, rather than as a word to rush into judgment.