Bipolar disorder is a mental disorder that causes unusual shifts in mood, energy, and activity levels. These moods range from periods of extremely “up,” elated, irritable, or energized behavior (known as manic episodes) to very “down,” sad, indifferent, or hopelessness during the depression phase. – National Institute of Mental Health (NIH).
I’m not a mental health expert (my wife is), but doesn’t bipolar disorder sound eerily like what the stock market suffers from?
The stock market goes through wild swings of optimism and then can quickly shift to periods of severe depression, then back to optimism, with this cycle continually repeating.
Want just a few examples?
Going back a bit further we can see similar patterns throughout the stock markets history.
If we deem that the stock market suffers from bipolar disorder. What can we do about it?
Maybe we can learn from what the National Institute of Mental Health recommends for treating bipolar disorder in individuals.
First, we need to understand it's a lifelong illness and usually requires lifelong treatment. However, the NIH says following a prescribed treatment plan can help people manage their symptoms and improve their quality of life.
Their (abbreviated) treatment plan includes a combination of:
Let's use the NIH as a template for our suffering stock market and related investors.
First, we need to understand that the stock market suffers from this condition and it's lifelong.
As investors, we will be dealing with the stock market and its bipolar disorder for the foreseeable future. Since we as individuals can’t “fix” the disorder the stock market suffers from, we need to decide how we are going to interact with the market when it’s going through its various periods of hopelessness and manias.
-Paul R. Rossi, CFA