The cycle of emotions
Investing, especially when you manage your own portfolio, is an emotionally rich experience. Generally, each investment starts with a feeling of optimism. As your expectations are gradually fulfilled, feelings of enthusiasm, exuberance and euphoria take over. This is the point that brings the highest level of financial risk.
Bull markets eventually stabilize, bringing feelings of anxiety, denial, and even fear. When markets start to fall, we are susceptible to despair and panic, and feel a desire to give up. Many people feel dismayed, and begin to question why they started investing in the first place.
When this happens, the only thing you can do is be patient. When markets start moving upwards again, we finally feel relieved, and our hope returns. The possibility of a brighter future makes us optimistic again.
The following curve shows the various emotions investors can experience:
Now that you’ve made the decision to manage your own assets, it is important to stay true to your investment strategy. It is normal for you to go through this range of emotions when you are investing. Just remember that after disappointment, optimism will come again!
It is often because of emotions that some investors miss out on recovery opportunities. When markets fall, they sell, which goes against very basic economic principles.