Learning to Love Fear and Greed

Doc's note: Today, I'm sharing an essay from famed political satirist P.J. O'Rourke. In a recent issue of his online magazine, American Consequences, P.J. explains how fear and greed run Wall Street... and why that's a good thing.

American Consequences is edited by P.J. and written by some of the smartest contrarian market analysts in the world. The best part is... it's 100% free. There's no subscription fee or "paywall" or anything like that. Sign up to start receiving issues right here.


It's an old Wall Street saying: "Markets are driven by greed and fear."

If so, markets are a sort of one-man full-court basketball game where you dribble acquisitively down the floorboards to sink an Avarice basket, only to find that the Worry side is down by two points, and then, panic-stricken, you have to pass the ball to yourself back across the center line and make a Safe Haven layup.

This is a ridiculous metaphor for investing.

Warren Buffett, in his 2004 Annual Shareholder Letter, famously said, "Be fearful when others are greedy and greedy only when others are fearful."

Good advice if you can assume that everybody's wrong all the time.

John Maynard Keynes addressed greed and fear in his 1936 magnum opus (and damn dull read) The General Theory of Employment, Interest, and Money:

... the characteristic of human nature that a large portion of our positive activities depend on spontaneous optimism rather than mathematical expectation... [Greed] ... can only be taken as a result of animal spirits... [Emotions] Thus if the animal spirits are dimmed and the spontaneous optimism falters... [Fear] ... enterprise will fade and die.

Note that the Wise Men of Wall Street, the Oracle of Omaha, and the Father of Modern Macroeconomics all seem to regard greed and fear as bad things.

We have no one to stick up for greed except Gordon Gekko, played by Michael Douglas in the 1987 Oliver Stone film Wall Street.

... greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary sprit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.

But remember, Gekko is the movie's villain. He's named after a lizard. (More than a dozen years before GEICO made a lizard cute.)

And there's no one at all to stick up for fear.

FDR (who, incidentally, had a terrible understanding of market economics) was full of baloney on the subject. "The only thing we have to fear is fear itself." And death, famine, war, conquest, heart disease, cancer, plane crashes, car wrecks, accidents in the home, snakes, heights, public speaking, falling behind on our car payments, etc.

In fact, greed and fear are the second and third most valuable emotions you possess. Love, of course, being the first – if you're lucky enough to have any. But greed and fear I bet you've got.

One way to better understand greed is to look at the origin of the word. The word isn't actually greed. That's a 17th century innovation, turning the adjective greedy into the noun greed (what linguists call a "back-formation"). The original word in Old English is grædig, which, by the 13th century, becomes the more recognizable gredie, and all it means is "hungry."

The Indo-European root of greedy is gher-, "to like or want." That gher- root, with various phonetic shifts, shows up all over the place in our family of languages. It's there in the Latin word hortari, "to cause to strive or desire," from which we get the English word exhort. And it's also in the Greek word kharis, "grace, favor," from which we get charisma.

As a word, greedy comes from a really good family. (And I'm feeling really good that for the first time in 50 years, I've found a use for my college minor in linguistics.)

When we say a word, we invoke a concept. When we denigrate greed, we denigrate hunger. People who don't eat are sick – or soon will be.

Are you a "Market Anorexic"? Are you living in a tent with one change of underwear so that you can convert all your worldly goods into Krugerrands and bury them in a secret part of the campground?

Oliver Stone is the real villain in Wall Street – for putting the truth about greed into the mouth of the movie's bad guy.

And what about fear? The word means... No, I won't take you down another rabbit hole of etymology. Fear – in all its origins, roots, forms, formations, derivations, and cognates – means fear.

And where would we be without fear? Toddlers have none. If you've raised a toddler, you know where that leads... right to the basement door and the top step of the long, steep cellar stairs.

Or worse. As America's most profound philosopher, Dave Barry, says to his two-year-old in his profoundly philosophical book Babies and Other Hazards of Sex: "NEVER EVER PUT YOUR FINGER IN THAT PART OF THE DOGGIE!"

Usually as people grow up, they acquire some common sense, which is to say they get frightened.

But some don't. We've all known people who had no fear. People who rode their motorcycles like Evel Knieval but without planning in advance which cars, trucks, or Snake River canyon they were going to jump over. People who consumed drugs the way the rest of us consumed Doritos. People who drank so much that they would have halted the rise in global sea levels if oceans were beer. People who attempted to fix the snow blower while it was still running.

You used to know a lot of people like that. You don't know them anymore. They're dead.

And you're not... thanks to fear.

Investing is not a game of one-man basketball. The better metaphor is cooking. Of course, there's greed and fear involved in that too, especially if you're a glutton eater and a frightful cook the way I am.

Where the heck is the top to the blender? Well, a piece of Saran wrap will probably do...

How was I supposed to know you can't microwave raw eggs?

Darn it, the pilot light's out. I'll just poke my head into the oven with my Bic and...

You're afraid you can't afford the grocery bill. You're afraid you didn't get the right ingredients. You're afraid you'll poison your family. (What's the date on this can of beans? 2012? Wasn't 2012 a good vintage year for beans?)

But most of the time the "Fear and Greed of Cooking" works out just fine. You feed your family.

When you follow the greed and fear recipe, you're using just the right mixture of liking and wanting, of causing to strive and desire, of grace and favor (a pinch of luck), plus a dash of trepidations, apprehensions, misgivings, and qualms to keep you from cooking up something stupid.

Dig in.


P.J. O'Rourke