Umme Laila Firdousi

If you’ve ever checked the stock market and felt an uncontrollable urge to either distribute mithai or cry into your chai, congratulations—you’re officially an investor. The Pakistan Stock Exchange (PSX) is less of a financial hub and more of an emotional rollercoaster, where one minute you feel like Warren Buffett, and the next, you’re questioning all your life choices.

To the untrained eye, the stock market appears to be a place of logic, where data drives decisions and rational investors reign supreme. In reality, it behaves more like a chaotic mix of fear, greed, and gut instinct—where emotions routinely hijack reason.

Greed: The Fuel Behind Market Bubbles

Picture this: a stock is soaring. Everyone on WhatsApp is talking about it, your cousin’s friend is suddenly an “investment expert,” and a little voice in your head whispers, “I should get in before it’s too late!”

This is FOMO (Fear of Missing Out) in action. Investors pile in, not because they’ve studied the company’s fundamentals, but because they see others making easy money. The stock keeps climbing, not because of earnings or growth, but because demand is artificially inflating the price.

And then—pop. The bubble bursts. Maybe it’s bad news, maybe it’s just the market sobering up. Panic sets in, and suddenly, those same investors who happily bought at sky-high prices are selling at a loss. The cycle repeats.

Herd Mentality: The Blind Leading the Blind

Imagine walking past two restaurants. One is packed, the other is empty. Which one looks better? Most of us assume the crowded one must be serving great food.

The same logic applies to investing. When we see a stock rising, we assume others must know something we don’t. We rush in, following the herd—sometimes without even knowing why the stock is going up in the first place.

This explains why market rallies and crashes often have little to do with actual company performance. Investors aren’t just reacting to financial data; they’re reacting to each other.

Take the recent fluctuations in the KSE-100 Index. Prices soared—not necessarily because companies suddenly became more profitable, but because sentiment was high. Then, before Ramadan, prices dropped. Was it due to economic fundamentals? Or was it simply because investors expected others to sell and decided to beat them to it?

The market is often a self-fulfilling prophecy—perception shapes reality, and expectations drive valuation.

The Illusion of Control: You Think You Know, But You Don’t

Raise your hand if you’ve ever thought, “I’ll buy this stock now because it’s bound to go up next week.” Now lower it—unless you own a time machine, you don’t know that.

Many investors suffer from the illusion of control—the belief that they can perfectly time the market. Reality check: even professionals with billion-dollar research teams get it wrong.

Yet, we convince ourselves that this time is different. We stare at charts, find patterns that don’t exist, and make decisions based on what feels right. But feelings don’t predict stock movements.

If they did, your retired uncle on Facebook would be running a hedge fund.

So, What’s the Takeaway?

Understanding these psychological forces—fear, greed, herd mentality, and the illusion of control —won’t turn you into a millionaire overnight. But it will explain why the market behaves the way it does.

The stock market is not just a numbers game—it’s a mind game. The biggest swings don’t come from economic changes alone; they come from how investors react to those changes.

So the next time the market plunges and you feel the urge to sell everything, or when it’s soaring and you want to throw in all your savings—pause. Ask yourself:

“Am I making a rational decision, or am I just reacting to the noise?”

Because in investing, as in life, the ones who stay calm while others panic are usually the ones who win.

The author is a Graduate Scholar at IBA-SESS and Assistant Manager at JS Investments.