Greed isn't what you think... Give up fear, understand risk... Know your circle and stay in it... You're never alone in your circle... Your circle-widening partner...
The horror! Fear has gripped the market...
CNN's popular Fear & Greed Index tells the tale. On a scale of 0 to 100, with the highest level signifying extreme optimism about the market, the index was as low as 14 today. Anytime it's 25 or below, CNN says investor sentiment is "extreme fear."
I (Dan Ferris) am not sure who is afraid, but CNN can't possibly be talking about the U.S. stock market. The S&P 500 Index – which makes up 80% of the total market cap of U.S. stocks – dropped 1.1% yesterday. Through yesterday's close, it has fallen 2.5% below its most recent all-time-high close on October 28 in eight trading sessions.
Eight days is hardly an eternity. And a drop of less than 5% shows nothing remotely close to extreme fear in the market.
Simplify Asset Management Chief Strategist Mike Green recently took to Substack to point out this discrepancy...
CNN has been proudly displaying its "Fear & Greed" index for over two decades, but in the past few months it has been firmly wedded to "Fear" even as markets make continuous new highs – a pattern it showed in early 2025 as well.
Green says he can't explain it, partly because he can't reproduce CNN's results using the same data.
But I don't really need an explanation...
I realized a few years ago that sentiment indicators are pure noise and can be ignored.
Everybody knows when the market is making new all-time highs... when it's trading at cheap or expensive valuations... or when it's up or down a lot or a little any given day, week, month, or year.
There's no need for a survey of how investors feel, or any other metric designed to reflect the feeling or mood of the market. Those feelings are expressed in stock prices. And anyone can look those up in an instant.
If you pay attention to daily market news and movements and don't have an intuitive sense of the market's general mood, check your pulse. You might be dead.
Right now, the S&P 500 is less than 3% from all-time highs and trades around record valuations after a blistering 35% run off the April 8 "tariff tantrum" lows. You don't need a survey of what investors think to tell you they're super optimistic.
CNN's Fear & Greed Index is not a survey. As CNN defines it:
The Fear & Greed Index is a compilation of seven different indicators that measure some aspect of stock market behavior. They are market momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe haven demand. The index tracks how much these individual indicators deviate from their averages compared to how much they normally diverge. The index gives each indicator equal weighting in calculating a score from 0 to 100, with 100 representing maximum greediness and 0 signaling maximum fear.
The fact that it's using seven quantifiable measures makes its extreme fear reading an even greater mystery. If it were a survey, it would be easy to see how it could register extreme fear while the markets are buoyant. Knowing it's made of seven indicators that are mostly showing optimism (at least by Green's accounting) only leaves me wondering how it could be so utterly wrong.
One issue is that the index's premise is faulty from the start. CNN treats fear and greed as the opposite emotional poles of the market. And that doesn't make sense.
Fear is our dominant emotion at all times, because that's how humans operate. First and foremost, we want to avoid being eaten.
This primal emotion was established over millennia of evolution and hasn't changed just because fewer people are getting eaten. But we still react with the same sense of mortal peril based on less lethal stimuli like market prices.
We're not greedy when markets go up... We're fearful about not participating...
And worse, we're scared that our neighbors will get a leg up and outperform us.
So the only fear I see in the market almost every day of the year is the fear of missing out ("FOMO").
Lately, investors' FOMO has focused on AI and gold stocks. But I'm primarily identifying it as a general human tendency in modern financial markets. We're always afraid of something.
Greed isn't the opposite of fear. It's just another type of fear.
It's also amusing that anybody is worried about being left out of something they can't avoid...
AI will find their portfolios and virtually every aspect of their lives, just as the Internet did. There's no need to fear that you'll miss out. It's like fearing you'll miss out on death and taxes.
Instead of being driven by fear, learn to understand opportunity and risk...
They're much more important than the made-up construct of "fear and greed."
Unlike the opposing monoliths of fear and greed, opportunity and risk come in a variety of guises.
A long-term investor who focuses on owning great businesses spots certain types of opportunities. A diehard chart-reading market technician spots others. And so on...
The only question is what kind of investor you are and what types of opportunities you'll learn to spot.
Warren Buffett introduced the investing world to an idea he calls "circle of competence." You understand the types of investments inside your circle, and you don't understand the ones outside it.
You can and should spend your life expanding your circle, but you shouldn't venture outside of it. The risk/reward proposition will always be superior inside it.
As Buffett puts it, "You can't kiss all the girls." You won't find every winning stock. There are too many of them, and they all require different skills and ways of looking at the market.
The circle of competence is a great way to understand the yin and yang of investing: what to do (opportunities) and what to avoid (risk).
By wandering outside your circle of competence, you increase your risk.
The epitome of this is someone who's always chasing the latest hot new trend... And the best example in recent memory is the meme-stock craze...
The whole thing started with a clever analyst named Keith Gill, who concluded GameStop (GME) was undervalued. He did the work and based his conclusions on his own analytical process. He wasn't chasing anything. He was looking forward, not backward.
He turned out to be right, which eventually led to a massive short squeeze in the highly shorted stock, sending GME soaring out of sight in early 2021. Good news for Gill.
Unfortunately, big, fast gains attract the masses, who knew Gill from his online posts and videos as "Roaring Kitty." An entire movement was born. Other stocks, most notably AMC Entertainment (AMC), experienced similar volatility and sharp short-squeeze-induced price spikes.
Anybody with even a modicum of market experience knows the trade has run its course as soon as the masses get involved...
Latecomers failed to understand that once that initial squeeze took place, there was virtually zero chance anything like it would ever occur again. The cat was out of the bag. And even though smaller squeezes followed, none of them came anywhere near the astronomical heights of the first one.
To make matters worse, you basically had to time your exit with absolute perfection to make a lot of money. All the meme stocks went straight up like blazing rockets and fell straight back to Earth.
Folks who bought GME at its peak are down about 75% if they're still holding. AMC is even worse, trading more than 99% below its meme-stock highs.
And it's not silly to talk about losses from those peaks, because by definition, that's when the masses pile in and buy. Even worse, meme-stock buyers filled social media feeds with their intention to "never leave," meaning never sell their shares until the stocks went "to the moon." They haven't gone to the moon. They've dug straight into the ground.
And of course, GameStop and AMC are lousy businesses in dying industries, run by people who don't seem to know how to run them.
Gill understood the stock was undervalued and bought early. But the meme-stock buyers didn't understand anything: the fleeting nature of big short squeezes, the crummy businesses they were buying, the dying industries they were in, the lousy management teams they were investing alongside... They didn't get one important thing right.
They're the opposite of Gill, who did his own work and invested based on a sound analytical process. They're also the opposite of investors at the other end of the spectrum from Gill, who did no research, filled their 401(k)s with index funds, and left them alone for the past few decades. These latter investors drew a small circle of competence and stayed inside of it.
Of course, no investment strategy is without risk – and risk changes over time...
Even within your circle, you'll sometimes have to cut your losses on an investment that goes against you... or it'll eat up even more of your wealth.
Regular Digest readers have heard me warn about the large and growing risks facing index investors.
Today, the S&P 500 is not a highly diversified portfolio. Buying it now means shoveling 40% of your money into the 10 most popular stocks in the world (based on their market caps). I've pointed out before that history has demonstrated that the top 10 stocks tend to change from decade to decade and investors looking for outsized gains should mostly avoid them.
So like every other investor, the index-fund folks should be working to expand their circles of competence, so they can understand that index funds aren't the same proposition they represented decades ago. They should head toward the territory occupied by Stansberry Research subscribers.
We publish numerous newsletters and portfolio services, which cater to a variety of investment styles and goals. These are tools that can help you figure out where to draw your circle and how to stay comfortably inside of it. There's no need to restrict yourself to average (and increasingly risky) S&P 500 returns.
That's an important point about being a Stansberry subscriber...
You alone allocate your capital. We can't do that for you. Even so, you're never completely alone inside your circle as long as we're here.
For example, I know many subscribers now consider corporate bonds within their circles thanks to our Stansberry's Credit Opportunities newsletter. Likewise, if you're a regular reader of Stansberry Venture Value, small-cap stocks are in your circle of competence.
In all of our newsletters, we publish a full analysis of the company we're recommending. Even reading this research is enough to increase your competence. You're not buying blindly.
You can also widen your circle by marrying your own experience with ours. For example, I could imagine a Stansberry subscriber who works in biotech gaining further expertise and insight from investing in those stocks by reading Stansberry Venture Technology.
Likewise, someone could use Stansberry's Commodity Supercycles to augment their own knowledge of mining and energy. And if you want to beef up your skills with the insights of a Wall Street veteran who made billions of dollars for clients, you should read our newest publication, Market Maven.
You could say we're in the business of helping investors widen their circles of competence.
Finally this week, I'm reminded of a great little book that I highly recommend...
It's called The Proof of the Pudding (What Has Worked for Us): A Three-Way Approach to Successful Long-Term Investing, by Herbert Hart.
Hart was a longtime analyst for asset-management firm Tweedy, Browne for many years. Based on his experience, his book recommends putting a third of your money in the hands of one or more professional advisers, investing another third in a well-chosen fund (or funds), and managing the final third by yourself.
Overall, it's a reasonable approach, as long as you choose good people, ideally with good long-term track records.
Still, I'd suggest you wouldn't even want to manage that last third totally by yourself, without the best research and advice you can get your hands on. That's where our services come in.
In the end, Hart's approach and our advice are both pointed at the same goal: to help you get fear, greed, or any other potentially toxic emotions out of the process of allocating your hard-earned capital.
That way, even if the Fear & Greed Index starts getting the market mood right, you won't need to bother with it.
New 52-week highs (as of 11/6/25): BP (BP), Ciena (CIEN), Cencora (COR), EnerSys (ENS), Alphabet (GOOGL), Kellanova (K), Lumentum (LITE), Ormat Technologies (ORA), Roivant Sciences (ROIV), SandRidge Energy (SD), and Valero Energy (VLO).
In today's mailbag, feedback on yesterday's Digest about the "bad vibes" around OpenAI... and AI stocks being punished this week... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Let's face it, AI is a bubble. The need to grow as fast as possible without regard to profitability is indicative of a bubble. The need to grow as fast as possible is to keep the money moving because when it stops then the bubble pops.
"The circular financing between Nvidia and its AI 'customers' is indicative of a bubble... I think people have lost their senses over AI because 'this time it's different' – except it isn't.
"I hope the bubble pops soon because the longer it goes on the more damage it will do." – Subscriber S.J.I.
"Mr. McLaughlin, What a lot of Americans feel [is] China is a fight to death with us when it comes to AI! 'Profitable' etc., does not have a place in this case when the Chinese government is pouring exorbitant amounts of money in the race to succeed. Gentlemen, it's a war!" – Subscriber John S.
Corey McLaughlin comment: I'll take your point that Chinese AI might kill me... But in the meantime, we're focused on building and protecting wealth over the long run.
"AI has been around for a LONG time. I was an early guinea pig for this process.
"Years ago, I was a field service technician for the DuPont Riston business [related to circuit boards]. If a customer had a problem, it was my job to fix it and make him happy. Unfortunately, for me this was a very bad situation. Printed circuit board production is a complex process involving between 12 and 18 separate processes, any of which could result in failure. I was extremely good at diagnosing problems. Usually within 30 minutes of watching the process I knew where the problem was and how to fix it. As a result I was in high demand from the industry. In the worst year, out of 250 working days, I was travelling 205 of them. I was burning out. So management wanted to clone my experience and purchased an 'Artificial Intelligence' system.
"I spent a week being interviewed about what could cause this or that. The problem was that no one could ask the really important question because no one knew what it was. I didn't know what it was. The industry knew the answer to all of the known problems and could fix them on their own. The problem was how do you teach an AI system to recognize and correct a problem that no one has ever seen before. That's what I did very well, and to be honest, I don't know how I did it.
"This is the weakness of any AI system. They are just fancy statistical programs that rely on past facts – if you believe that the internet is factual. When something new comes along they have no data to process and they are toast..." – Subscriber Earl H.
Good investing,
Dan Ferris
Medford, Oregon
November 7, 2025
