… common and UNcommon viewpoints about money

First, I want to say that I’m not an expert when it comes to investment. However, I wanted to share this information I picked up from a seminar. This is one of the indicators to note when you want to invest and I think it would be useful if you are a contrarian investor. If you are the “go with the flow” investor, then probably this won’t be useful.

The Fear Factor chart better known as the Volatility Index, shows how volatile the market is. The higher the index, the more volatile, the more it indicates that investor are feeling fearful. The lower the index, the less volatile and investors are feeling safe.

While there is reason to invest in stock that are low in price, this does not mean investing blindly. You have to know the underlying company’s financial state. Is the fear well founded or irrational. People flee a stock for a reason. However, for good companies during times of uncertainty, when prices have dropped, it may make sense to invest.

Warren Buffett says "Be fearful when others are greedy; be greedy when others are fearful." This doesn’t mean be lazy!

Like I said in the early part of the post, this index is an Indicator.

You can see the chart at Yahoo Finance

I came across the phrase Hedonic Treadmill today. It seem quite alien to me and I looked up the meaning.

Investopedia defined it as “The tendency of a person to remain at a relatively stable level of happiness despite a change in fortune or the achievement of major goals. According to the hedonic treadmill, as a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness”

The theory behind Hedonic Treadmill is not all that hard to understand. Human beings adapt to changes in the surrounding environment. So when your financial environment change, we quickly adapt. For example, if you are making say $ 5,000 a month and you can pay all your bill with some left over, if your income doubles to $ 10,000 overnight, you will be happy initially. After sometime, you get used the the $ 10,000 income per month lifestyle and the level of your happiness reverts back to the level when you are making $ 5,000.

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