THE CYCLE OF MARKET EMOTIONS

EUPHORIA
EUPHORIA ANXIETY
ANXIETY

THRILL
THRILL DENIAL
DENIAL

EXCITEMENT
EXCITEMENT FEAR
FEAR SUCCESSFUL INVESTORS
RECOGNISE THIS IS EXC
EXC
T HE POINT OF
MAXIMUM FINANCIAL
OPPORTUNITY
SUCCESSFUL INVESTORS
RECOGNISE THIS IS
OPTIMISM
OPTIMISM T HE POINT OF DESPERATION
DESPERATION OPTIMISM
OPTIMISM
MAXIMUM FINANCIAL
R ISK

PANIC
PANIC RELIEF
RELIEF

CAPITULATION
CAPITULATION HOPE
HOPE

DESPONDENCY
DESPONDENCY DEPRESSION
DEPRESSION

EEXXCCI TI TEEMMEENNT T T THHRRI LI LL L EEUUPPHHOORRI A

IA AANNXXI EI ET TYY DDEENNI A
I AL L F FEEAARR DDEESSPPEERRAAT TI O
I ONN PPAANNI C
IC CCAAPPI TI TUUL LAAT TI O
I ONN DDEESSPPOONNDDEENNCCYY DDEEPPRREESSSSI O
I ONN HHOOPPEE RREEL LI EI EF F OOPPT TI M
I MI SI SMM

NOVEMBER 1971– –JANUARY

NOVEMBER1971 JANUARY1973
1973
JANUARY 1973– –NOVEMBER
JANUARY1973 NOVEMBER1973
1973 MARCH 1974– –NOVEMBER
MARCH1974 NOVEMBER1974
1974 DECEMBER 1974– –JUNE
DECEMBER1974 JUNE1975
1975

++31
31%% ––20
20%% ––37
37%% ++46
46%%
MARKET
MARKET Inflationary
Inflationarypressures.
pressures.Productivity
Productivityimprovements.
improvements. OPEC
OPECOilOilcrisis-crude
crisis-crudeoil
oilprices
pricestripled.
tripled.Inflation.
Inflation. Global
Globalrecession.
recession. Sharemarket
Sharemarketrecovery
recovery
CYCLE
CYCLE11 Rapid
Rapidcorporate
corporateearnings
earningsgrowth.
growth. Credit
Creditsqueeze.
squeeze.Property
Propertycompany
companyfailures.
failures. Extended
Extendedbear
bearmarket.
market. despite
despiterecession.
recession.
Introduction
Introductionofofpaperless
paperlesstechnology.
technology.

JULY 1986– –SEPTEMBER

JULY1986 SEPTEMBER1987
1987 SEPTEMBER 1987– –OCTOBER
SEPTEMBER1987 OCTOBER1987
1987 NOVEMBER 1987– –AUGUST
NOVEMBER1987 AUGUST1988
1988

++115
115%% ––9
9%% ––44
44%% ++48
48%%
MARKET
MARKET OCTOBER 1987– –NOVEMBER
OCTOBER1987 NOVEMBER1987
1987
Credit
Creditboom.
boom. Irrational
Irrationalshareholder
shareholdersentiment.
sentiment.Peak
Peakofofoverinflated
overinflated Sharemarket
Sharemarketrecovery
recoveryon onbasis
basisofofvalue
valuehunters
hunters
CYCLE
CYCLE22 1987
1987Global
Globalstock
stockmarket
marketcrash.
crash.
Strong
Strongworld
worldeconomic
economicgrowth.
growth. share
shareprice
pricevalues
valuescompared
comparedwithwithhistorical
historicalPE’s.
PE’s. buying
buyinggood
goodquality
qualitystocks
stockscheaply.
cheaply.

MARCH 2003– –DECEMBER

MARCH2003 DECEMBER2007
2007
1997– –SEPTEMBER 2000– –SEPTEMBER 2002– –FEBRUARY

++142
142%% ––29
29%% ––38
38%% ++62
62%%
APRIL
APRIL1997 SEPTEMBER2000
2000 NOVEMBER
NOVEMBER2000 SEPTEMBER2001
2001 MARCH
MARCH2002 FEBRUARY2003
2003
MARKET
MARKET Geopolitical
Geopoliticaluncertainty;
uncertainty;refocus
refocuson
onworld
worldeconomic
economic
Tech
Techboom.
boom.Investor
Investorexuberance.
exuberance. Tech
Techwreck.
wreck. Reduced
Reducedglobal
globaleconomic
economicgrowth
growthforecasts.
forecasts.
CYCLE
CYCLE33 fundamentals;
fundamentals;boomboomininresources
resourcesininresponse
responsetoto
Emergence
Emergenceofof“new
“neweconomy”
economy”sectors.
sectors. September
September1111Terrorists
TerroristsAttacks.
Attacks. Extended
Extendedbear
bearmarket.
market.Corporate
Corporateaccounting
accountingscandals.
scandals.
industrialisation
industrialisationofofChina.
China.

RR UU SS SS EE LL LL II N
N VV EE SS TT M
M EE N
N TT G
G RR O
O UU PP
MARKET CYCLE1 11971-1975
MARKETCYCLE 1971-1975PERIOD
PERIODRETURNS
RETURNSARE
AREFOR
FORTHE
THEUNITED
UNITEDSTATES
STATESSHAREMARKET
SHAREMARKETBASED
BASEDON
ONDAILY
DAILYPRICES
PRICESOF
OFTHE
THES&P500
S&P500INDEX
INDEXININUSD.
USD.MARKET CYCLE2 21986-1988
MARKETCYCLE 1986-1988PERIOD
PERIODRETURNS
RETURNSARE
AREFOR
FORTHE
THEAUSTRALIAN
AUSTRALIANSHAREMARKET
SHAREMARKETBASED
BASEDON
ONDAIL
DAIL
YYPRICES
PRICESOF
OFTHE
THEALL
ALLORDINARIES
ORDINARIESINDEX
INDEXININAUD.
AUD.MARKET CYCLE3 31997-2007
MARKETCYCLE 1997-2007PERIOD
PERIODRETURNS
RETURNSARE
AREFOR
FORDEVELOPED
DEVELOPEDSHAREMARKETS
SHAREMARKETSBASED
BASEDON
ONDAILY
DAILYPRICES
PRICESOF
OFTHE
THEMSCI
MSCIWORLD
WORLDINDEX
INDEXININAUD.
AUD.
Issued
IssuedbybyRussell
RussellInvestment
InvestmentManagement
ManagementLtd
LtdABN
ABN53
53068
068338
338974,
974,AFS
AFSLicence
Licence247185.
247185.
Point of maximum opportunity?

20%+ ASX corrections since 1987

DATES % DROP NEXT 12
MONTHS
Oct 87/ Nov 87 -49% 38%

Aug 89/ Jan 91 -30% 42%

May 92/ Nov 92 -20% 50%

Feb 94/ Feb 95 -20% 20%

Mar 02/ Mar 03 -24% 26%

Nov 07/ Jan 08 -24% ???

MSCI Australia Share Index from Oct 87 to Jan 08.

Source: Datastream