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I personally think we're still somewhere in between the denial and fear stage. When you read not long ago about a security guard at a shopping mall killed by being trampled on, does this suggest that we've past capitulation or even despondency? I think not.

Your movement along the curve mimics the speed at which current financial markets have been unfolding. Whilst this may hold true for what markets participant feel, it is not however, the speed with which the real economy evolves. We have just started to see unemployment (substantially) rise. Further, there is no telling whether we may remain stuck at a particular level for some time.

This is going to be one long affair unfortunately.....

Kent @ The Financial Philosopher


I will not disagree with your comment, primarily because I would never pretend to know what the future holds, and opinions are never "wrong."

The beauty (and wisdom) of philosophy, in my humble opinion, is that it is a process of seeking the truth while never pretending to actually BE the truth. Philosophy asks questions -- it does not give answers. The "answers" for each individual to reach (and act upon) should be a result of their own inner-thought and value systems...

With regard to the security guard being trampled, one could argue the mob was not acting in greed or even haste to spend their money -- they were acting out of irrational and blind desparation to get a "deal" on something they don't need.

Furthermore, the problem with your assumption is that it is not "scientific," either. The only way we can reach a "scientific conclusion" is if we had another event to compare it with.

For example, in a "normal" economy, perhaps two people, rather than one, would have been killed by the mob? Or, perhaps in a "normal" economy the discounts would not have been quite as deep and the mob would have been less irrational and no one would have been killed? One could make several equally intelligent arguments here...

Also, history will show that the economy is weak; people are losing jobs; and mass redemptions in mutual funds will continue to occur well into the early stages of a stock market recovery...

The market sentiment cycle is certainly not scientific or a prudent forecast model. Emotions fluctuate and all market participants are not feeling the same emotions at the same time.

I find it difficult to believe that an overall characterization of investor herd sentiment could still be "denial" at this stage, although there are certainly a minority of market participants who are in denial now that stocks will go lower, just as there are people in denial that stocks can go higher months and even years into the healthiest of bull markets.

To place my thoughts and investment policies into perspective (for my own money and that of my clients), is that I won't place one penny of money needed within three years into stocks.

With that said, do you believe that stocks will outperform cash over the next three years?

The bottom line is that investing (or using an investment adviser) is a personal decision.

Personally, I believe (and will invest as if) stocks will outperform cash over the next 36 months. I would not (and did not), however, make the same assessment 36 months ago...

The next 12 to 18 months is a bit more difficult (and imprudent) to "forecast," no matter which direction one would venture to wager...

Thanks for sharing your thoughts...


That's a very neat sinewave of the emotional rollercoaster ride of investing. However, I'm prone to believe that life is a lot messier than that picture suggests. The ripples from the financial crisis are still making it's way through the economy as month after month, businesses bleed money, people lose jobs, and financing becomes more difficult. Worst would be to get stuck in a negative feedback loop (vicious cycle) that overshoots an equilibrium on the way down as much as we went over the top during the bullrun. This to me means that we may have no idea how long we're stuck in the fear-through-depression stages of that picture.

I recently read an interesting article about experimental economics. This is brand new to me since I didn't believe we could create lab conditions to test economic hypotheses, but they have with investor trading. The results are astonishing: subjects were given a security to trade, and any uncertainty was cleaned away with a guaranteed dividend paid out every few minutes. It's fundamental value can easily be determined by calculating the sum of dividends paid out by the security. Investors would go through several rounds of trading, and each time, without fail, they would create a bubble and then proceed to crash.


Outside of the lab, my greatest concern is that populations grow on economies, and can crash with them. And we now have many many people to take care of, both in good and bad times. Do we have the resources and patience to make it through this? I know I was running low on both while looking for work after college. Now we multiply that by every unemployed or discouraged person and we have a societal issue. I actually believe we have the resources to support everybody, but distributed unequally, but between now and the point of return, things are going to get messy.

Thanks again for provoking our thoughts and minds, Kent.

Kent @ The Financial Philosopher


You make great points and I do not disagree.

Life certainly is not neat, orderly and predictable as the market sentiment graph suggests.

I believe there are elements of nature involved with anything and everything touched by an entity coming from it (i.e. humans), and the movement of the economy and stock market is no different -- it is cyclical.

As I stated in the post, market sentiment will fluctuate and will often have a longer duration on certain sentiments longer than others.

It is possible that we will bounce between fear, panic, capitualtion, despondency, depression and hope for quite some time, just as we my linger on complacency and greed on the top of a given cycle...

All I know is that this cycle will end and a new one will begin...

"Nature never hurries, yet everythingn is accomplished." ~ Lau Tzu

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  • Kent Thune is a wealth manager, a writer and a philosopher... Read More


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