Mood Versus Emotion
Another reason “confidence” is a good synonym for “mood” is because it makes it clear that mood and emotion are not the same things. Being sad does not preclude me from also being confident. By the same token, being happy doesn’t necessarily stop me from being uncertain. Emotions tend to be much more short term in nature than mood. Our emotions are often shaped by specific events, whereas mood tends to shape the events themselves.
Many psychologists like to link our mood to a continuum that ranges from pessimism to optimism. Although I don’t necessarily disagree with the connection, I am afraid that optimism and pessimism may reflect changes in our underlying confidence/mood rather than be contributors to it. For example, I might become more pessimistic because my mood has deteriorated and I am less confident. I also feel that both optimism and pessimism carry strong links to emotion, which only makes more confusing what is already a pretty ethereal topic for most people.
With all that said, there are moments when mood and emotion are seemingly indistinguishable. Those moments tend to be at the extreme turning points of mood. (I come back to this topic in Chapters 3, “Market Peaks and All the Red Flags They Wave,” and 6, “Signs of a Bottom in Social Mood”). I think this is one of the reasons why investors repeatedly make the wrong investment decisions at critical turns in the market. At the top, for example, we miss the coincidence of strong positive mood and strong positive emotions (such as joy, love, peace) because of our extreme confidence about what is ahead. Likewise, on days like 9/11 it is all but impossible for us to separate very negative emotions, such as tragedy and sadness, from an extreme level of uncertainty.