Human Emotions, Investor Behavior; Too Predictable?

  • Written by David
  • April 10, 2013 at 11:02 pm
  • 0
  • Greetings,

    As a student of my industry, I have spent much time over the years learning about human emotions, investor behavior, or what we call behavioral finance; simply defined as ‘psychology and the mistakes we make with our money’.

    Here are just a few graphs I have recently come across to simply remind all of us, that it is our emotions that so often create our investment behavior and actions. It is especially important right now as markets are making all time highs (nominal highs that is-not accounting for inflation) -inflation adjusted highs were created in the early 2000s.

    Interesting patterns from past to present, a few illustrations.

     

    S&P 500 Index 2012 vs 2013 YTD

    S&P 500 Index 2003 vs 2009, from market bottoms, to market tops

    There is always a favorite in any market

    High Yield Bond Index vs the S&P 500 Index, 2011, 2012, 2013

    Dow Transports. It is widely believed that the ‘transport’ index leads the market.  With 70% of our GDP coming from consumer spending, goods do have to be shipped before they can be purchased.

     

    Let’s hope not: ‘History does not repeat itself, but it often rhymes’ Mark Twain

     If investor emotions – rather than a change in investor goals – sparked this trend, it’s especially concerning.

    Source: Russell

    Source: Gratke Wealth, LLC

    The stock market is a wonderfully efficient mechanism for transferring wealth from the impatient to the patient” — Warren Buffett

     

    Source: Gratke Wealth, LLC

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    Note: All charts sourced from ZH.com unless otherwise stated.

 

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