The Powerful Psychology Behind Investment Decision-Making In Transitional Markets

Powerful psychological forces govern our investing behavior during transitional market conditions. Sometimes especially so, like right now.

If we become aware of these forces, we can learn how to manage them. And so save ourselves a lot of money and heartache, while we move through the risk of a highly emotional late-stage bull market.

The manipulative political situation we’re in is filled with efforts to sell us fact as fiction and fiction as fact.

The media discovered, from social psychology research, how to hook people with storylines that that create emotional reactions.

Emotions such as anger, fear and outrage sell advertising. Big time. Everything is now BREAKING NEWS! Because it triggers emotion.

Investing during transitional times, such as maturing bull markets, can be an incredible emotional challenge. Like all media, the investment media prey upon this challenge to stir the pot and to make money.

After a year or more of calm market conditions, the market is now volatile and unpredictable.

A steep February correction, followed by a recovery and then a further decline, has triggered large amounts of fear and hope.

Large numbers of investors fearlosing money, and so they emotionally pull money out of the market.


But large numbers of other investors now suffer from the FOMO syndrome. This “fear of missing out” drives them to emotionally put more and more money into the market.

Consider a few financial headlines: “Fear of missing out keeps investors in stocks despite risks” – Reuters, 12/1/17; “FOMO’ stock market sees a week of record inflows” – MarketWatch, 1/26/18 and “Investors’ Overriding Fear: Missing Out on Stock Rally” – Wall Street Journal, 3/1/18.

Never trust media opinion only. We need facts. It can be effortful work to find facts.

But unless we know what the facts are, we are in a hypnotic trance, whether as investors or media consumers in general.

We need to learn about current market conditions by understanding what’s happened in the past, under similar conditions.

Then we can recognize the power of hope and fear to trigger irrational investment decisions.

The Powerful Psychology Behind Investment Decision-Making In Transitional Markets