The Emotional Investor
I was recently talking to a financial advisor at Charles Schwab with a relative and he showed us the emotional stages of an investor:
He mentioned that currently, the majority of investors fall in between the panic stage (where small investors dump their holdings) and the capitulation stage (where large investors e.g. funds dump their holdings). He went on to say that the next two stages before the upswing could take 10 years each and no one knows because you can’t time the market.
What’s true, however, is if you pull out now, you lock in the high percentage loss likely forever. For someone who’s close to retirement age, their panic mostly comes from never getting to the hope stage before needing the money.
When I was in New York for the first time, I took a stroll down Wall St. and took photos (as you can see from the banner of this site). I found the bull, but not the bear. People told me it was around somewhere, but I just couldn’t find it. I hope we pass it soon. Luckily, I still have 30 years.
Nov 29th 2008
The curve is ironic in that all the negative emotions are during the best times to buy stocks and all the positive emotions are when one should be selling (or at least buying less). As Warren Buffett has been quoted as saying, “be fearful when others are greedy, and greedy when others are fearful.”