Jonathan Chevreau Looks At Market Emotions Cycle

Posted by Daniel Workman Mar 3, 2009

National Post's Jonathan Chevreau has written about the Cycle of Market Emotions in the past, but never has it been more pertinent than during the current global financial crisis.

Jon's Wealthy Boomer blog presents a compelling graphic for an investor's emotional cycle, one that we partition into a set of lists below.

Phase 1 – Upswing

• Optimism
• Excitement
• Thrill (Wow, I feel great about this investment)
• Euphoria (Point of maximum financial risk).

Phase 2 – Downswing

• Anxiety
• Denial (temporary setback, I’m a long-term investor)
• Fear
• Desperation.

Phase 3 – Worsening

• Panic
• Capitulation (maybe the markets just aren’t for me)
• Despondency
• Depression (point of maximum opportunity).

Phase 4 – Recovery

• Hope
• Relief
• Optimism.

Remarkably, the Market Emotions Cycle graphic closely mirrors the performance of one of Canada's most respected yet battered financial stocks: Manulife Financial (MFC on TSX).

The 6-month graph for MFC suggests that Manulife investors are teetering between Desperation (late phase 2 in our analysis) and Despondency (late phase 3). The 30% downward spike on already depressed price levels in the first week of March 2009 may well trace the Market Emotions Cycle's panic reaction.

With its exposure to the leading U.S. financial engine, not to mention a 10% dividend, hope then relief for Manulife stock may be on the horizon later on this year.