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This chapter is from the book

The Continuum of Social Mood

With all of that as background, Figure 1.3 presents what I see as the continuum of our own mood and confidence levels with our weakest mood level at the bottom left of the chart and our strongest level at the upper right.

Figure 1.3

Figure 1.3. Continuum of social mood

Source: Financial Insyghts

I chose the term self-assured certainty for the peak expression of mood (and self-assured uncertainty for the trough) because as I looked at the behaviors and decision-making processes at both extremes, I felt it was important to pick up what I see as the consequential behavioral characteristics of the “delusional” elements I just discussed.

At the top, for example, not only are we certain, but we are certain of being certain. It is certainty squared. As I discuss in Chapter 3, we act like that, too. Likewise, at troughs in mood, it feels like uncertainty squared as well. At the very bottom, we are certain that nothing is certain. The entire foundation of our confidence is shaken.

Most investment advisors and brokers try to present these thoughts in “emotion curves” like the one shown in Figure 1.4 from my friend Jeff Saut of Raymond James.

Figure 1.4

Figure 1.4. Investors’ emotion curve

Source: Jeff Saut, Raymond James

To me, it is enormously helpful in moments of market turbulence, for example, to be able to step back and to distinguish self-assured uncertainty from panic or even despondency and conversely at major peaks to separate “self-assured certainty” from “euphoria;” to split mood and mood’s related preferences and decision-making characteristics from the emotions we exhibit. By distinguishing between the cause and the effect, I think it is much easier to see euphoria (and the specific behaviors that naturally go along with it) as a real-time sign of peak self-assured certainty and a reason to sell, rather than an emotion into which one can be easily swept.

By better understanding mood, we can better see and respond to market opportunities rather than merely react alongside the rest of the crowd.

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