Tuesday, June 26, 2007

The Cycle of Market Emotions

I have seen a variety of renditions of this chart popping up and I thought I would post it here for interest sake. I think this piece has value in two respects:

1) It educates us that our emotions play a role in how we evaluate investments.
2) It educates us that most people's emotions go through a variety of phases regarding their investments.



What do you think? Can you relate? Have you had an investment experience that caused you to feel these emotions?

13 comments:

cape said...

Well, according to this chart I should buy a house now, because I'm right at the point of 'maximum financial opportunity' when it comes to real estate. :(

mohican said...

The chart is only referring to people who already hold investments and the 'typical' emotions that many people feel during different points in the market.

By no means is it meant to refer to all people all the time.

cape said...

Ah, in that case most current homeowners are probably at or around the 'point of maximum financial risk'. Although I'm feeling that way about some of my mutual funds these days as well. :o

Aleks said...

I guess that's the bull rollercoaster of emotion. The bear version would go "bemusement, disbelief, horror, expectation, vindication, smugness, smugness, smugness, smugness...."

jesse said...

"I guess that's the bull rollercoaster of emotion."

As they say, markets climb a wall of worry.

freako said...

We have been "euphoric" for 5+ years now. Does this drug ever wear off?

rentah said...

freako: Don't they say that a market can remain euphoric for longer than sane folks can remain somber? or something like that?

rentah said...

To summarize:
Singing in the Shower : Sell
Crying in the Car : Buy


- credit to Jeff Kern, a gold market timer.

mohican said...

rentah - that was amusing!

I think the saying you are referring to is 'Markets can remain irrational longer than you can remain solvent.'

rentah said...

mohican: yeah, i knew (you'd have known I knew if this was face to face), but I was trying to create a mildly humorous paraphrasing using 'euphoria' instead of 'irrational'. Any other suggestions?

PS: the singing/crying techniques work, I can vouch for that.

Aleks said...

Maybe they work for normal people, but I think I'm too pessimistic. I start worrying about whether I should sell when my stocks rise too fast.

Piggly Wiggly said...

I remember looking at Yahoo! in the middle of 1999 thinking. "I have to get into this, I'm missing an opportunity." I became despondent and slightly depressed because I really couldn't afford the stock. I passed and instead bought Gulf Oil at $2.00 or something a share. I'm glad I did.

When dotcom thing unwound, I learned a lesson that one should never ever ever get emotional about investments!

Piggly Wiggly said...

EDIT:

Because of the Yahoo! experience, and with one exception, I have had this neutral emotional position on the stocks I've owned.

I've lost so much money on the "exception" that now I have a humorous view of it!