May 29, 2019
The theme for this week is: stock market cycles...explained.
Predicting where we are in the current cycle isn’t as complicated as it sounds. You just need to have a good pulse on the general emotional state of investors, which you can get from talking to coworkers, neighbors, friends, and family, as well as paying attention to what the so-called experts are saying in the newspapers and TV - because they usually fall victim to the emotional pattern too.
Today, I’m explaining the full market cycle, so you can bring this all together and understand the ups and downs of markets.
Before I jump into the full stock market cycle explanation, I want to let you know I’ll be linking to a visual chart of the stock market cycle in the show notes of this episode - episode 227: https://bit.ly/2HrP4XJ. If you’re a visual learner like me, check out the chart in the show notes.
So here’s the market cycle, explained:
The beginnings of the market cycle after a market bottom begin with hope. After capitulation, despondency, and depression, come hope. And that’s what begins the upward trend of a positive market cycle. After hope comes relief, optimism, then excitement, thrill, then finally at the top, euphoria. At the point of euphoria, investors become blind to any and all risks. This was evident in the peak of the real estate market in the mid-2000s, when everyone was clamoring to get in, because housing prices were only going up from there. We all know how that turned out.
After the euphoric peak, and the stock market begins its path to the bottom, we have anxiety, followed by denial, fear, panic, then finally, capitulation and depression at the bottom. Then, the cycle starts over again.
As you can see, the key to understanding market cycles is just to understand that a) it’s a predictable pattern and b) its emotionally driven.
If you can become an astute observer of human behaviors and the general consensus of those around you, it will help you better understand market cycles and not get sucked into the damaging emotional buying and selling at the wrong times that afflicts so many investors.
That’s it for today! Thanks for listening.
My name is Ashley Micciche and this is the One Minute Retirement Tip.
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