Emotions can significantly impact investment decisions, often causing investors to panic and sell stocks at inopportune times.
Here is an illustration of the “cycle of investor emotion:”
The “cycle of investor emotion” demonstrates that as markets rise and investor emotions shift from optimism to euphoria, a savvy investor should become more cautious. Conversely, as markets decline and emotions turn to despondency, it presents a good investment opportunity.
However, we see the total opposite narrative taking place in equity flows as emotions tend to make investors abandon and reenter stocks at the worst times.
