In listening to a recent interview with Warren Buffett on Huffington Post, Buffett commented that:

“People get scared in crowds, confidence comes back one at a time.”

I believe this statement to be 100% true, which is why investment gains that may take years to build up, can be wiped out in a matter of weeks or days.

Incidentally, Buffett’s statement also provides the psychological reason for why it’s possible to make money in the stock market, in the first place. Basically, because confidence builds slowly, prices of stocks that are in turnaround mode do not immediately reflect the fact that “things are getting better.” This slow recognition of positive changes, allows a minority of astute investors to buy into securities before the improved situation is accepted by the majority. With time, momentum builds in securities precisely because people get scared of missing gains, (i.e. greed is a type of fear), at which time the price of the stock can have a significant rise.

Finally, since “confidence only comes back one at a time”, it stands to reason that only those with a non-conformist mindset can succeed as investors. It takes a certain aversion to following the “normal” path, that allows one to risk capital where the majority of others currently still fear to tread.