CNN’s new, shiny, useless ‘Fear And Greed’ Index
One recent morning, I woke up and discovered CNN Business’s new Fear & Greed Index: a rating of 0 being “extreme fear,” and a rating of 100 being “extreme greed.” At the moment I’m writing this, they say we’re at 32.
What is the Fear and Greed Index, you ask? According to CNN,
The Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced. The theory is based on the logic that excessive fear tends to drive down share prices, and too much greed tends to have the opposite effect.
In other words, if you want to sell too many stocks, you’re a coward, and if you’re buying too many stocks, you’re an ass. A “fairly priced” stock, we can safely deduce, is a stock nobody really wants to buy or get rid of, and a “healthy” market is one where nobody wants to trade anything at all.
An important question might be asked here. Isn’t the whole gist of the stock market to buy low and sell high? And how do they determine whether people are buying too high or selling too low? Especially since you can’t buy without a seller?
Stock prices can plunge only when people want to get rid of something, and fewer people want to buy it than yesterday. But no matter how high or low prices go, no matter how many sales happen in one day, every act of “fear” would have to be counterbalanced by an act of “greed.” One person is afraid that the stock could go lower, and the other person is hopeful he can sell it for higher — in other words, just like every transaction in the history of the whole stock market.
The label of “fear” is fair and understandable. It’s the concept of “greed” that makes CNN look clownish. Is greed when you want to earn a lot of money? If so, how much exactly? Is it when you want to earn money for yourself and not give it away for free? Is it when you earn at the expense of a relationship, or of justice? Is greed when somebody’s hurting and you keep your money so you can have fun? Are you unselfish when you earn nothing? And if so, is any investment moral at all?
CNN does provide some insight into its method. Thankfully, it has a Q&A farther down the page.
How is Fear & Greed Calculated?
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.
In other words, the difference between “greedy” and “normal” is based on 1) how fast prices are changing, 2) how fast prices are changing (again), 3) whether prices are changing (again), 4) how much people are allowed to buy or sell for, and when 5) whether people are feeling lucky playing hot potato, 6) how much prices are changing (again), and 7) whether people don’t want to play hot potato anymore. I looked up every single one of these terms on Investopedia, and what CNN is trying to say, in so many fancy words, is that it’s just reading you the NASDAQ.
But just in case CNN hasn’t made it completely clear that it thinks you’re a moron, it has a handy guide at the end to drive the point home.
How to use Fear & Greed Index?
The Fear & Greed Index is used to gauge the mood of the market. Many investors are emotional and reactionary, and fear and greed sentiment indicators can alert investors to their own emotions and biases that can influence their decisions.
So if you don’t know how you’re feeling, and you’re worried you might accidentally sell a stock because you’re a chicken, or you might buy one because you’re a jackass, go ahead — look up CNN’s FAG index, and it’ll give you a rating. Today you’re 32, and you’re kind of a coward. But at least we can say you’re not a jerk.
Jeremy Egerer is the author of Prejudices — a collection of questionable essays on Substack.
Image via PickPik.