Thursday, July 10, 2008

Emotional Stages During A Bear Market

Having been an investor through the last four bear markets, I can tell those experiencing their first is that bear markets are pretty painful, both emotionally and financially. As the stock market goes up and (mostly) down, there are emotional highs and (mostly) lows. The emotional stages I've experienced are similar to the Five Stages of Grief developed by Elisabeth Kübler-Ross:
  • Denial - In the early stages, I mistakenly believe the stock market decline is a minor correction. I buy on the "dips" thinking that I will be buying low. Often the stock price goes even lower. I buy more, thinking I am getting even a better price. And the stock goes lower.

  • Anger - After the market continually to go down, I get angry at all the suspected causes of the market decline, e.g. government, investment banks, analysts, speculators and companies.

  • Bargaining - I start thinking, "If I can only get back to even, I'll sell and be whole again." As the bear market gets worse, I lower my exit point to -2%, then -5%, etc.

  • Depression - Well into the bear market, I start to think that my losses are big and perhaps not recoverable. My financial goals seem to become unreachable. I wish I had invested in CDs.

  • Acceptance - At the end, I become resigned to the losses, start selling losing positions and begin rethinking my investment strategies. Soon afterwards, the bear market ends.

  • Based on what I have been reading in personal finance blogs, the overall sentiment seems to be one of denial. Many commenters, who may not have experienced a bear market, feel a bear market is a great opportunity saying something similar to, " This is a great time to BUY stock." For me, a great time to buy stock is when the majority investors have experienced acceptance and wish they had never invested in a stock.

    It seems there may be a while to go before that stage happens.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

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