Behavioral Challenges of Market Cycles



Check out the chart above, via Visual Capitalist. If I were to guess where we are in this cycle, I’d say guess we are way past denial, but not quite at full-blown panic yet.

This can change very quickly.

The challenge with all market cycles is that they are so easy to see after the fact but so difficult to deal with when you are right in the middle of them. This is true in all sorts of endeavors, where things can and will go wrong, and to “get right” requires a level head and a cool disposition. Emotional responses — “Thinking Fast” in Danny Kahneman’s parlance — are the enemy of good decision-making. “Thinking Slow” gives you an advantage.

Consider the many expressions about responding to the unexpected — righting the ship, getting back on the horse, recovering the slide, getting back on track, regaining momentum. They all refer to returning to a period of correction and recovery in order to return to your plan.

The obvious questions: What was your plan before this market disruption? What are you doing to maintain that plan? If you deviated from your prior plan, how are you going to get back to it?


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