Today we are inundated with tons of information and sound bites on stock market. All sorts of chart, graphs, data point are being used to put forth different point of views. The talking heads in business channels tell us how different micro and macro economic factors are going to affect certain stocks.
But if you step back and see, there is one very important factor that influences the market. That is mass psychology of all people who own equity of any type. The stock market is a reflection of this mass psychology wherein investors swing between extremes of euphoria and despair. And this mass psychology does not necessarily reflect actual economic condition at any specific moment.
I came across this amazing Wall Street Cheat Sheet which depicts the psychology of a market cycle.
Where are we now in this cycle? I think somewhere between Optimism and Belief.
“I can calculate the motions of heavenly bodies ….. But not the madness of people !” – Isaac Newton.
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