Psychology of investors and other aspects that affect the stock exchange climate

In the economy there are those who think that human beings act in a rational way. However, it often seems not to be true. The on going of the stock exchange market and the current situation of the economy also affects the state of mind and the psychology of people.

Usually, when you begin to overcome periods of economic crisis and the stock exchange markets begin to experiment important risings, people become more optimistic with respect to their future and start to consume and invest more than what is advisable according to the objective data. Simultaneously, the main sectors of the economy (construction, automobiles, tourism and others) begin to go better. This situation positively affects the market and quotations most of the companies raise, no matter if their situation is good or not so good.

However, the beginnings of an economic crisis in a country usually is accompanied by a descent in quotations and of a great lack of spirit from part of the people, which harms even more the market and the economy.

There are many studies that demonstrate that people often behave in a not very rational way in relation to the stock exchange investments. For example, when a crack is produced, the recommendation would be to sell from the beginning, or well not to sell if this would cause great losses, due that most of the securities, at least those of more solid companies and of better future perspectives will recover themselves after a more or less long period of time. Anyway, this situation is different from that in which the quotation of a company has lost important value and that their bad future perspectives makes you think that things will get worse.

On the other hand, it is precisely in the stock exchange market that a crack is produced making it worth to invest in it because the prices of the shares are usually very low. Most investors at that moment does not precisely wish to hear about investing in the market. Some of the investors in the market usually repeat some of the same behaviors that are considered as not too rational:

• casino player behavior
• not to recognize bad decisions, which prevents to cut losses on time
• to invest or disinvest based on unfounded rumors, instead of doing it based on studying the data of the company.

For it, it is convenient to remember that the prediction of a crack is not an easy job, but there are a series of data that increases the probability of it from happening:

• interest rates start rising
• there are symptoms in which the economy begins to warm up and the rate of inflation starts to rise
• the companies begin to experiment an evolution on their sales that do not grow as much
• unpaid debts increase
• average price earning ratio (PER) is very high and other stock exchange ratios also indicate that the shares are expensive.

In the stock exchange climate, the general policies are also influential. In this way, for example, the possibilities for the beginning of a war conflict or of the victory of radical political parties in elections may cause the market quotations to fall. While, on the contrary, if a political party that favors private investments is elected, this will have a positive effect on the stock exchange markets.

Beginner Money Investing Analysis of the Economic Juncture & of the Moment Types of Interest Market Inflation Economic Policies Psychology of investors and other aspects that affect the stock exchange climate Market Variations Summary