Robert Prechter (Socionomics) made a twin contrarian observation giving profound and substantive explanation for where we are in our economic trends: One, we humans behave emotionally as one moving herd, and two, our herd emotions are the cause rather than the effect of the rising and falling of our markets. Never mind the overstatement and oversimplification (assuming I represent Prechter accurately); consider how the observation helps explain a great deal … and how you may be able to take advantage of it in your business.

Taking a piece related to the observation, you know that people buy what they want rather than what they need. Do you buy foods that are good for you or foods that taste sweet? Does a poor man have a 36 inch HDTV or extra roof insulation to reduce his heating bills? Given a choice between getting a wisdom tooth pulled or buying a name brand purse … in other words, the market is made up of customers and the customer buys, invests or doesn’t based on emotions.

Painting in broad terms, again for simplicity sake, those emotions can be broken into two basic camps. One camp could be comprised of emotion laden terms like excitement, joy, greed, vanity, hope, optimism, goodwill, confidence, bright colors, and openness. The other could be comprised of terms like fear, suspicion, anger, blame shifting, circle the wagons, pessimism, depression, subdued colors, and sarcasm. When enough people in the herd are dominated by emotions in the first camp, we call it a bull market; the other is a bear market. And of course there are big and little movements and trends in the herd.

Peter Rubel