This week, I’m talking about stock market crashes and the predictable emotional pattern that all crashes follow.

Today, I’m bringing this conversation full circle, by talking about the complete emotional pattern of stock markets. So far, I’ve only talked about the emotions during a bottoming process, but it’s important to recognize what it looks like when then market comes out from the depths of the bottom and starts its inevitable climb again. Because in this crisis, it’s not a matter of if, it’s when that will happen. 

The climb out from the bottom starts with hope. Signs appear that maybe the world won’t come to an end after all. After hope comes relief, then optimism. 

After the financial crisis, it wasn’t until around 2012 before investors really started to feel optimistic about the future again. The housing market was still in rough shape and employment was still elevated at 8%. It was a long, slow, hard recovery coming out of the last recession and it took years for real optimism to return. Of course, by then if you waited until you started to feel optimistic to jump back into the market, you missed a massive opportunity, since the stock market bottomed over 3 years prior and had more than doubled in value since the lows in 2009. 

Following optimism, excitement starts to enter as investors start to feel really good about the stock market. The emotions following optimism are in order: enthusiasm, exuberance, until finally at the top you have euphoria. The best example of euphoria was with the housing market in 2005. I was thinking about buying my first house around that time and looking at housing prices, and was hearing things like, if I don’t buy soon, I may never be able to afford to buy a house, because housing would only go up from there. Of course that was far from the truth, but I remember worrying that I would miss the opportunity to buy a home. 

So it’s just as important to understand the emotions of a bull market, because the point of euphoria and the top of the stock market also marks the point of maximum risk. 

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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