The View | Investors may fall victim to animal spirits in markets
Investors run the risk of losing their perspective of where they are in an investment cycle, especially when caught in an environment of familiarity
When you are in the forest, it is difficult to see the trees.
The noise is deafening and you lose your bearings. When this happens as investors, we can fall prey to such jungle beasts as situation framing and familiarity biases, and we lose perspective of where we might be in the investment cycle.
Behavioural finance theory tells us that it is very easy for us to become framed or boxed in with our thoughts - comfortably cocooned within a familiar environment. It becomes very difficult for us to think laterally about where we are in the market cycle.
One of the best ways to break this is to look at the markets over a very long period.
Most of us can remember one cycle from boom to bust and back to boom again. It gets harder to remember the lessons that several ups and downs teach us.
This length of time between peaks recently is around seven years; the seven-year itch referred to in previous columns. It is not an optimistic indicator to recall that the last bull market ended in October 2007.
