The fluctuation — or inconstancy — in attitudes toward risk is both the result of some cycles and the cause or exacerbator of others. And it will always go on, since it seems to be hard-wired into most people’s psyches to become more optimistic and risk-tolerant when things are going well, and then more worried and risk-averse when things turn downward. That means they’re most willing to buy when they should be most cautious, and most reluctant to buy when they should be most aggressive. Superior investors recognize this and strive to behave as contrarians.
