Chapter 87: The Emotion Curve
As the next morning's light filtered through the kitchen window, Jake and Zeke sat at the table, sipping coffee and hot cocoa. Jake was still mulling over their conversation about opportunity and disaster. But there was one thing he couldn't shake—the emotional rollercoaster he imagined investors must go through during market ups and downs.
"Granddaddy," Jake started, looking up from his cup, "you’ve talked about how people panic during market crashes and how others see opportunities. But how do you manage your emotions when the market is all over the place? It’s gotta be hard."
Zeke gave a small chuckle, taking a slow sip from his mug before answering. "Ah, Jake, that's one of the hardest parts of investing—the emotion curve. It’s a natural cycle that investors go through, and it plays a huge role in how well they do in the long run."
"The emotion curve?" Jake asked, leaning forward with curiosity.
"Yep," Zeke said, pushing his chair back a bit, settling in to explain. "Think of it like this: when the market is doing well, everyone feels great—there's excitement, maybe even greed. People think the good times will never end. That’s when they start buying more, feeling invincible. But when the market takes a turn and starts to fall, fear and anxiety set in. And if things keep dropping, people move to panic and despair. They can't stand seeing their investments shrink, so they sell—usually at the worst possible time."
Jake could almost picture it in his mind—a wave of emotions, rising and crashing. "So, the market goes up, everyone’s happy. Then it goes down, and they freak out?"
"Exactly," Zeke said. "It's a cycle. When prices rise, there's euphoria, and people pile in, convinced it’s going to keep going up forever. But when it drops, the fear sets in. At first, it's just worry, then full-blown panic as it keeps falling. That’s when many people sell, because they’re convinced it’s only going to get worse. Then, when the market starts recovering, they realize they missed out on the rebound."
Jake furrowed his brow. "So people buy when they feel good and sell when they feel bad?"
Zeke nodded. "It sounds crazy, but it’s exactly what happens. Most people are ruled by their emotions when they invest. They follow the crowd—buying high when everyone’s excited and selling low when everyone’s scared. It’s the opposite of what you should do."
"Then how do you keep yourself from riding that emotion curve?" Jake asked, determined to figure out the trick.
Zeke leaned forward, his tone serious. "The key is to recognize that emotions are part of investing but not to let them control your decisions. When the market's up and you’re feeling good, remind yourself that it won't last forever. And when things are bad, remember that markets recover—so selling out of fear will likely cost you."
"But it’s gotta be hard not to panic," Jake said.
Zeke smiled knowingly. "It is. And that’s why you need a plan. If you know why you bought a stock in the first place and understand its long-term value, you won’t feel the same urge to sell when it dips. Instead of acting on emotion, you’ll act on your research and your goals. It’s about discipline and staying focused on the big picture."
Jake nodded slowly. "So, if you have a plan and stick to it, you won't be as tempted to follow the crowd when emotions get high?"
"That’s exactly it," Zeke said, standing up and grabbing his empty cup. "Investing isn’t just about picking the right stocks. It’s about managing your emotions. The better you can do that, the more successful you’ll be in the long run."
As Jake watched his granddaddy rinse out his cup, he realized that the emotion curve wasn’t just about money—it was about life. There would always be highs and lows, but how you handled them determined the outcome. And in investing, just like in life, the people who stayed calm and stuck to their principles were the ones who came out on top.