Manias, panics, and unreasoned greed and fear. There are five ways of attacking with fire. Regardless of how a fire starts, the usual result is panic.
Markets periodically experience manias and panics that are accompanied by extreme price movements.
Our challenge is to remain calm and prepared to capitalize on the opportunities created by the extreme price movements as opposed to being trampled by the movement. As individual portfolio managers and risk managers, we are not in a position to precipitate a mania or panic. However, we can be in position to observe and profit from the unreasoned, herd-like price movements that often times accompany mania and panic market conditions. In attacking with fire, one should be prepared to meet five possible developments. When fire breaks out inside the enemy's camp, respond at once with an attack from without.