Investors had been experiencing a bull market for several years, but recently things have taken a downturn, bringing about feelings of fear and desperation. This roller coaster of emotions is a completely normal part of investing, and private wealth adviser Paul Blatz is here to discuss it. The stages of psychology in investing have been extensively researched, and this roller coaster of emotions has been categorized into different stages. It starts with optimism, excitement, and thrill when investors feel confident in their investment decisions. This can lead to overconfidence and euphoria, where maximum financial risk tends to be. However, cracks in the market can cause panic, fear, and desperation. This often leads to capitulation and despondency, where investors feel like the markets are not for them and are ready to give up.
The cycle then starts over again, with the pendulum swinging back to the beginning stages of optimism and excitement. This cycle is a normal part of investing, and understanding this psychology is essential to making better financial decisions. Paul also talks about behavioral finance, which looks at the various psychological aspects of investing like herd mentality, anchoring, and overconfidence. Being aware of these tendencies and talking about them with a financial advisor can aid in making better investment decisions.
While these emotions can be challenging to navigate, acknowledging them and understanding the stages is a positive step towards making informed investment decisions.
View other episode:
Behavioral Finance Explained, Ep 1 – Loss Aversion
