Separating Emotions from Investing
Fear and greed are said to be the twin drivers of day-to-day market activity. Either emotion can
be the downfall of an otherwise well thought out investment program for an individual.
The accompanying chart, provided by Barclays Wealth, is a market cycle showing some of the
emotions that might be associated with certain stages. Investors may recognize many of these
stages, perhaps from their own experience. Periods when everyone is excited about market or
stock prospects, media stories about the new wealth being created, how market cycles are
now a thing of the past, and so on, often mark a market top.
Conversely, when things look bleakest, some investors swear off stocks forever (capitulation).
These are the times when the greatest bargains may be available for the next cycle.
What is the prevailing market mood today? Decide for yourself. But the key is to recognize that
the emotional roller coaster recurs again and again. This perspective will provide some
equanimity in dealing with the difficult task of wealth building, as well as avoiding some of the
pitfalls that emotions can create.