“When positive events occur as described in the last chapter and euphoria, optimism and greed rise, investors tend to become less risk-averse than usual and less risk-averse than they should be. What are the effects (following on from the list of the functions investors perform on page 106–107)? Since they feel better about the environment and are more optimistic about likely outcomes, they reduce the amount of caution they bring to the investing process. Since they no longer consider investing to be risky, they don’t see the need for painstaking analysis. They tend to make assumptions that are more generous, and they replace skepticism with credulousness. They’re willing to make do with a reduced margin of safety. Viewing risk as less worrisome, they no longer demand risk premiums as cushy as in the past. They behave less as sticklers, since they’re more attracted to the returns on risky investments and less leery of the risk they involve.”