The financial market is composed of people, who have feelings and emotional cycles when dealing with certain scenarios.
For this reason, some concepts of emotional and sentimental cycles can be applied to investment strategies. One of these concepts is what we call Antifragility.
This term was widely known thanks to the mathematician and writer Nassim Taleb.
The first investors are those who see the real value of an asset. They are the people who notice a real problem in the economy / day-to-day and realize the importance of that asset as a solution or mitigation of that problem.
As they notice the real value, these investors are also the most anti-fragile and least care about the quotation (price).
A fragile investor is one who will easily give in. For a value investor to give in to a bear market or any other type of internal / external pressure, it is much more unlikely.
When the hype comes
A market forged by anti-fragile investors tends to gain strength. These people do not easily get rid of their positions, while the demand for the asset only tends to increase on the part of these early adopters.
Once the market gains notoriety and the situation improves, the second wave of investors enters. These, in turn, do not know / can see the real value of the asset. They are moved by price (quotation).
For this reason, they are the most fragile type of investors.
When the market is taken over by fragile / fragile investors, the market as a whole becomes fragile as a result. And here come the difficult times.
As they are motivated by the price of the asset, fragile investors always seek to make a profit from their operations. They tend to act as speculators in the market.
This is excellent because it generates liquidity and they are responsible for transferring investors' expectations to the market as quickly as possible, through price.
However, any abrupt movement in the asset price scares fragile investors. They do not know how to evaluate what is expensive or cheap, as they do not see the real value of the asset. Any herd movement will startle you and take you out of play.
For this reason, a market seized by fragilists tends to go through difficult times.
In difficult times, investors who only care about quotations leave the market. Meanwhile, antifragiles take advantage of the period to accumulate.
For this reason, a market seized by fragilists tends to go through difficult times. In difficult times, investors who only care about quotations leave the market. Meanwhile, antifragiles take advantage of the period to accumulate.
Difficult times encourage increased exposure and investor dominance in value.
Antifragilists create antifragile and bull markets. And then the cycle begins again.