The pendulum of mood

Have you ever pushed a swing in a park? It goes far out to one side, stops for a tiny moment, and then rushes all the way back to the other side. It almost never just hangs quietly in the middle. If you want to find the swing resting calmly at the centre, you will wait a long time - it is nearly always on its way to one extreme or the other.

Howard Marks, the American investor famous for his calm "memos," said the mood of the market behaves exactly like that swing - or like a pendulum, the weight on a string in an old clock that swings side to side. On one side is greed: everyone is excited, hopeful, and sure prices will keep rising. On the other side is fear: everyone is gloomy, scared, and sure everything is finished. And here is the strange, important part Marks noticed: the market almost never sits calmly in the sensible middle. It is nearly always swinging away from one extreme and toward the other.

Not only that - the pendulum does not stop at "fair." It flies past the middle and keeps going, overshooting to the far greedy side or the far fearful side, further than it sensibly should. This study is about seeing that swing clearly: understanding that the crowd's mood overshoots both ways, and that the calm, fair middle is the one place the mood rarely stays.

Most people imagine the market is usually "about right," wandering a little above or below fair value. Marks said that picture is wrong. The market spends very little time being fair. Instead it swings from too cheap to too expensive and back again, and it always seems to go too far in each direction before turning around. Understanding this saves you from a big mistake: thinking that because prices are high today, they must be near the top, or because they are low, they must be near the bottom. A pendulum in motion can still swing much further.

Why does it overshoot? Because moods feed on themselves, and people copy people. When prices rise, some people make money and feel clever; their happiness makes others greedy; the greed pushes prices higher, which makes even more people greedy - and the swing races past "fair" into "too expensive." Then something small goes wrong, the swing turns, and the same thing happens in reverse: falling prices scare people, the fear spreads, and the swing races past "fair" into "too cheap." The pendulum does not gently glide to the middle and stop. It is thrown from one extreme all the way to the other, because the very thing that pushes it - the crowd's mood - grows stronger the further it goes.

So the reading skill is to stop expecting the market to be sensible. Expect it to be emotional, and expect it to overshoot. When you notice the mood has swung far toward greed, do not think "surely it's near the top." Think "the pendulum is far out on the greedy side, so I should be careful - and it may swing back hard." When it has swung far toward fear, do not think "surely it will keep falling forever." Think "the pendulum is far out on the fearful side, and pendulums always swing back." You will never catch the exact turning point. But knowing the swing overshoots both ways keeps you from being fooled at both extremes.

illustrative Follow one steady company, GreenHarvest, whose calm, fair value stays around ₹100 the whole time. Watch how far the mood pendulum carries its price away from that ₹100.

Start at the fair middle: the price is ₹100, and the mood is calm. But calm never lasts. Good news arrives, buyers feel clever, greed spreads, and the pendulum swings toward "too expensive." It does not stop at a slightly-high ₹120 - it overshoots all the way to ₹180, far above the ₹100 the business is really worth, because greed fed on greed. Then a small worry appears. The swing turns. Now fear feeds on fear, sellers rush, and the pendulum flies past the middle again - it does not stop at a slightly-low ₹90, it overshoots down to ₹60, far below fair value, because everyone is too scared to buy.

Notice: the company's real worth barely moved from ₹100 the entire time. Only the mood moved - and it moved far too much in both directions. Someone who understood the pendulum would not have believed the ₹180 (greed overshooting) and would not have panicked at the ₹60 (fear overshooting). They would have remembered that the crowd's mood always swings past fair, and that ₹180 and ₹60 were both the pendulum at its extreme, not the truth about GreenHarvest.

Knowing it overshoots does not tell you how far, or when it turns. The pendulum idea warns you that an extreme is likely to swing back - but not when, and not how much further it will go first. A market that is already "too expensive" can become far more expensive before it turns, and a "too cheap" one can get cheaper. People who bet the swing must reverse "any day now" have often been early by years and lost a lot waiting.

You need to know 'fair' to know it has overshot. Saying "the pendulum is too far out" only means something if you have some honest idea of where the fair middle is. Without a sense of real value, every level just looks like "the current price," and you cannot tell an overshoot from a sensible price at all. The idea assumes you have done the work to guess roughly what a thing is worth.

Your mood swings with the pendulum. The hardest part is that the same force pushing the crowd is pushing you. When the pendulum is deep in greed, you feel greedy and it is very hard to call it "too expensive." When it is deep in fear, you feel scared and it is very hard to call it "too cheap." Understanding the pendulum in a calm classroom is easy; staying steady while it drags your own feelings along is the real challenge.

You can watch this pendulum swing without owning a single share. Think of a cricket crowd: when the home team hits a six, the whole stadium roars as if the match is already won; one over later, after two wickets fall, the same crowd is silent as if all hope is lost. Nothing about the match truly changed that fast - only the mood swung from one extreme to the other. Our markets do the same. A hot new listing everyone rushes into, a property craze in one town, a share a whole WhatsApp group is buzzing about - these are the pendulum swinging toward greed. The gloom after a crash, when everyone swears off shares forever, is it swinging toward fear. The lesson Marks leaves you is calm: expect the crowd to overshoot both ways, distrust both extremes, and remember that the sensible middle is exactly where the mood almost never chooses to rest.

• Expect emotion, not sense. The market rarely sits at "fair" - assume it is usually swinging toward one extreme or the other.
• Remember it overshoots both ways. Greed pushes prices further above value than makes sense; fear pushes them further below. Distrust both far ends.
• Don't confuse 'high' with 'the top.' A swinging pendulum can go much further before it turns - being far out is a warning, not a timer.
• Hold a sense of fair value. You can only call something an overshoot if you have an honest guess of what it is really worth.
• Watch your own feelings swing too. The mood dragging the crowd is dragging you - the calmer you stay, the better you can read the swing.