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Rising Market: Investor enthusiasm builds as returns increase.
Euphoria: At this peak, everyone feels optimistic about the market, resulting in a tendency to overinvest.
Denial: As the market begins to round over, many investors choose to "buy and hold," believing the market will recover.
Pessimism and Panic: As the downturn continues, negativity escalates, often leading to selling at market lows.
Recognizing where we are in this sentiment cycle can help investors anticipate potential market movements.
Smart Money vs. Dumb Money
The terms "smart money" and "dumb money" serve to categorize different types of investors. Smart money typically refers to institutional investors or experienced market players, while dumb money indicates average retail investors.