No matter what decisions investors are making, there will always be some level of uncertainty. That’s where the acronym FUD comes in. What does ‘FUD’ mean in the stock market? FUD stands for Fear, Uncertainty and Doubt.
There are certainly legitimate fears and doubts that many investors (and many of our readers) have expressed. Fear of a market-crash or sell off. Investing too little or too late. Fear that your investments are too risky. These are real concerns.
However, when investors mention the word FUD, they aren’t talking about risk assessment or fact-based approaches. They are referring to rumors, social media hype or an irrational emotional approach to decision making. Therefore, FUD, when used in context, holds a rather negative connotation. Essentially it is used to mock the poor decisions of unskilled investors.
What Does FUD Mean in the Stock Market?
FUD is commonly referred to as a barrier or concern related to a particular investment. It could be stocks, crypto or other investment products. But it almost always is used when referencing high-risk, volatile trending investments.
“Be fearful when others are greedy, and be greedy only when others are fearful.” – Warren Buffet
Fear is a critical part of what helps us make wise decisions. Without fear, you could walk into oncoming traffic without concern, bet your entire life savings on a game of poker, or make any other number of unwise choices.
FUD is something entirely different. It can cause high-risk investments to rise or fall 30+% in a day. “I feel like this stock is about to blow up!” is an example of what FUD means in the stock market. To clarify further, FUD is irrational speculation that can distract or influence your investment decisions.
In other words, FUD is sort of like “fake news.” People will spread FUD, because they know that certain investments and investors are susceptive to it. They can prey on weak-minded investors with fear-based news, with the hope of either crashing or spiking the price. They then use the mass FUD panic to buy when others are selling, or sell when others are buying.
Again, FUD is typically related to short-term or speculative investments. One of the most common themes you see with newer or more inexperienced investors is a lack of patience. They will buy a stock one day. Not long after, FUD kicks in. Why hasn’t this investment gone up? Maybe I got in too early? Maybe I got in too late? None of these questions are helpful as they are not based in fact.
Now we have talked about the irrational decisions that come with FUD. So, let’s look at an actual index that serves as a powerful panic or fear-based indicator.
Understanding volatility is an important part of risk assessment. Fortunately for investors, there is something called the VIX. The INDEXCBOE (VIX) is a ticker symbol and the popular name for the Chicago Board Options Exchange’s CBOE Volatility Index. It is a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. It is essentially an attempt to quantify fear in the marketplace.
Many seasoned investors have leveraged the VIX to make tremendous gains. For instance, our very own Karim Rahemtulla has referred to the VIX as “the most accurate indicator I’ve ever seen.” He went on to say “the VIX tells you when the market is panicking.”
To Learn more about the VIX, check out Karim’s VIX video below.
What Does FUD Mean?
Now that you understand the difference between an irrational fear indicator and a rational one, you’ve gained a valuable piece of information. Learn to keep your emotions in check as fear, uncertainty and doubt can cause you to make unwise investment decisions. Your financial freedom is not something to take lightly. Above all, approaching your investments with a longer-term mindset will help you avoid short-term fears over volatility.
We hope this article helps clarify what FUD means in the stock market. For more articles like this one, check out our financial literacy section. There you’ll gain valuable tips that can help take your investment knowledge and your portfolio to the next level. And make sure to subscribe to our free Investment U e-letter below for more stock market tips and trends.