Based in Kingsport, TN
Cycle of Market Emotions
When things are great, we feel that nothing can stop us. When things go bad, we often look to take drastic action-usually at the wrong time. Human emotions can be such a threat to an investor’s financial health, and it’s important to be aware of this.
We at iInvest® have seen this happen time and time again to investors over the years, especially during the Secular Bear Market of 2000-2013.
In order to understand the Cycle of Market Emotions, let’s break it down into three stages.
Stage 1: Optimism, Excitement, Thrill, Euphoria.
All investors start with Optimism, you’re confident that things are going to go your way and believe that you’ll make some type of return for the risk you’re comfortable with.
Excitement and Thrill come into play when you meet your expectations of getting a return. You played the stock market and won. The greater the return, the greater the thrill. This is usually when Euphoria takes over.
Euphoria is the top of the cycle and it is at that point when investors feel like they cannot make a mistake. They can take on the market and expect the same or even greater results as before. This is where things get dangerous.
Stage 2: Anxiety, Denial, Fear, Desperation, Panic, Capitulation, Despondency
Stage 2 is when things start to deteriorate for the investor. Expectations are no longer being met and they’re not seeing the returns they did at the start. Anxiety kicks in, the investor begins to worry that things could get bad.
Now is usually when we see Denial and Fear start to show. When it does show, the investor falls into Desperation and will start to think about getting out of these riskier assets all together or make a move to a safer option, such as bonds.
Panic sets in, and some investors give in. They enter a state of Capitulation. The investors that keep going at this point become Despondent.
Stage 3: Depression, Hope, Relief, Optimism
Stage 3 is where the investor tries to rally back after being at the lowest part of the cycle (Depression). They tend to feel some initial skepticism when markets start to rise, but then begin to have Hope.
When the market continues to rise even more, a sense of Relief comes over the investor and that quickly turns into Optimism. They start to trust their ability and tend to get back into the riskier stocks.
Written by Craig Dillon
The iInvest® team are experts in guiding investors through the cycle of stock market emotions. We even developed an optional trademarked tactical asset allocation strategy called TacticalSHIFT®️, designed to be a bear market safety net during high market risk, especially meant for pre-retirees and retirees.
If you are interested in learning more about TacticalSHIFT® technologies feel free to contact us today.
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