KEY TAKEAWAYS
With the stock market in bear market territory, having dropped more than 25% from the start of the year, many investors are starting to ask… have we hit bottom yet?
Predictions abound and you should ignore most of them, but what almost no one realizes is that while stock markets are inherently unpredictable, the market does follow a very predictable emotional pattern.
In today’s video, you’ll learn:
- Emotional patterns of the stock market
- What a stock market bottom looks like, so you know how to spot one
- How to take advantage of opportunities that exist at the bottom and resist the urge to sell and cash out at the worst possible time.
Click here to watch the full video or read the full video transcript, below.
Coronavirus: Have We Hit Bottom Yet?
The scary part of investing is the unpredictable nature of the stock market and dealing with the pain of bear markets, which can often last for a year or more. And if you’re close to retirement, it can be devastating if you’re caught with too much in stocks and you’re planning to retire or you just retired in the midst of a recession and a bear market.
One of the biggest mistakes you can make as an investor is to buy high and sell low. Too many investors fall victim to their emotions of fear and greed and buy and sell at the wrong times.
Emotional Patterns Of The Stock Market
Understanding the emotions that define market cycles is very important. Market emotions tell you when we’re near or at the top, and when we’re near or at the market bottom. The key is spotting those emotions and taking advantage of it.
As I said before, while the stock market is unpredictable, the emotional patterns of market cycles follow a predictable pattern. If you can spot the emotions of the stock market at a given time, you can more accurately determine where we are in a given market cycle.
Market bottoms are defined by pessimism, followed by panic, followed by capitulation (or surrender). Market bottoms – all of them by the way – are marked by feelings of hopelessness and depression. It’s palpable.
Stock Market Bottom – Now What?
If you have a good sense of where the emotional state of the market is, what can you do with that information? Well, if you have cash on hand you can recognize a market bottoming process for what it really is: an incredible buying opportunity.
But if you’re like most investors and you don’t have Scrooge McDuck piles of cash laying around in a vault, you can use the market bottom to give you hope & optimism, and perhaps most importantly, give you a reason not to sell, since the end is near and things are going to turn around.
The Great Recession
I want to share with you this brief news article from March of 2009, because I think it’s very instructive. It was 18 months into the stock market downturn of the Great Recession, the unemployment rate was still climbing, millions of Americans had already lost their homes, and the stock market had lost half of its value.
Yet, on a random day in early March of 2009, the stock market hit bottom and started it’s slow and steady climb for an incredible 11 year run since that time. An article from CNNmoney.com on March 9th, 2009 reads: “Stocks tumbled Monday, with the Dow and S&P 500 ending at fresh 12-year lows, as Merck’s $41 billion purchase of Schering-Plough failed to distract investors from worries about the economy….The S&P 500 (SPX) index lost nearly 7 points or 1%, to end at 676.53, its lowest point since Sept. 12, 1996….‘We’re seeing more of the same,” said John Buckingham, chief investment officer at Al Frank Asset Management. “With an absence of good news, the path of least resistance is down.”
In this one news article, you can feel the surrender, the hopelessness, the throwing up of the hands in just the simple observation of “well, it’s another down day… just more of the same.” That’s all the commentator had to add that was noteworthy – more of the same.
Yet on this day – March 9th, 2009, the stock market hit bottom, and began one of the greatest and longest bull market runs in history.
What’s Your Pulse On The Stock Market?
You can use this predictable emotional pattern of market cycles to determine where the market might be, and use that knowledge to take advantage of opportunities no matter where we are in the market cycle.
So what do you think? What’s your pulse on where the stock market is today, based on the emotions you pick up on in news stories, the VIX index, and other indicators of fear currently present? Hopefully after watching this video you are better able to answer that question.
