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Investor Sentiment During Market Cycles

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Investing is an emotional task for most. Part of the true value of a good advisor is to help clients to manage the emotions as a calm third party. Two simple facts are as follows:


  1. Most investors have very high risk tolerance in up markets and almost no risk tolerance in down markets. Again, managing expectations and emotions is a needed skill of any investment advisor.
  2. The average retail investor gets stuck in a pattern of "buy high and sell low". Not a winning formula but the psychology of investing has a powerful effect.

The two charts that are shown below illustrate the psychology and sentiment of investing. The first we hope you get a chuckle out of and the second is the plain truth. The good news of all this is that we are of the opinion that there is a good potential on the upside in the US equity market for the foreseeable future. Keep in mind next year is an election year in the States. Our view of the Canadian equity market isn't quite as rosy. Here is an excellent article from Morningstar supporting our view of the US. It's title is "U.S. Bull Market Far From Over".