The Paradox of Success: When Rising Markets Challenge Long-Term Plans

When investors think about the emotional challenges of managing a portfolio, bear markets usually come to mind first—the anxiety of watching account values fall, the urge to sell during downturns, and the difficulty of sticking to long-term plans when losses increase. Most financial education and risk assessment tools naturally focus on helping investors prepare for and handle market declines.

However, behavioral finance research indicates that bull markets may bring their own set of discipline challenges that merit equal attention. Although this view is less often discussed, evidence from historical market cycles and investor behavior studies shows that rising markets can create psychological pressures that may cause some investors to stray from their carefully planned investment strategies.

Understanding Bull Market Psychology

During extended periods of market gains, several behavioral tendencies may emerge that can potentially undermine investment discipline. Academic research in behavioral finance has identified specific psychological biases that tend to become more pronounced when markets are performing well.

FOMO, or fear of missing out, can grow stronger when investors see others seemingly making big gains in concentrated positions or trending investments. Research by behavioral finance scholars Brad Barber and Terrance Odean suggests that investors who trade more frequently—often due to overconfidence during strong market periods—may earn lower returns than those who trade less frequently, though individual results can vary significantly based on numerous factors.

The phenomenon of "regret aversion" may also influence behavior. Some investors feel more regret from missing out on potential gains than from actual losses, especially when peers or media coverage emphasize significant returns in certain sectors or asset classes.

Social dynamics can make decision-making more complicated during bull markets. When investment success stories become common topics of conversation—whether involving technology stocks, real estate, cryptocurrencies, or other assets—the psychological pressure to join in can increase, even if such investments don't fit an investor's original strategy or risk tolerance.

The Role of Comparison: Benchmarks and Peers

Investor satisfaction is often shaped not only by absolute performance, but by relative performance—how one's portfolio compares to reference points such as market benchmarks or peers. These comparisons can have particularly powerful emotional effects during bull markets.

Most investors hold diversified portfolios that include not only U.S. large-cap stocks, but also mid- and small-cap stocks, international equities, and fixed income. As a result, their performance will naturally diverge from popular indices like the S&P 500, Dow Jones Industrial Average, or NASDAQ Composite—especially during periods when those indices are dominated by a narrow group of outperforming stocks or sectors.

A more meaningful comparison might involve a blended benchmark that reflects the investor's specific portfolio allocation—say, 60% global equities and 40% bonds. But that's not what investors are typically exposed to. The financial media, headlines, and casual social conversations tend to focus on the major U.S. equity indices, particularly when they are hitting new highs. These headline benchmarks become the default anchor for comparison, even when they don't align with an investor's strategy or risk profile.

When these indices decline and a diversified portfolio falls less, investors may feel comforted by the relative resilience of their holdings. But when those same benchmarks surge—especially in concentrated bull markets driven by a handful of large-cap growth stocks—diversified portfolios often trail in relative performance. That disparity can lead to frustration or second-guessing, even when the investor has earned solid absolute returns and remains on track toward their financial goals.

In addition to market benchmarks, investors often compare themselves to peers, especially in informal social settings. This behavior aligns with what psychologists call Social Comparison Theory—the tendency for people to evaluate themselves relative to others as a way of assessing their own abilities and opinions. In investing contexts, this natural human tendency can be particularly misleading during bull markets. Research in psychology generally suggests that people are more likely to share their successes than their failures. In investing, this means that stories of well-timed trades or concentrated bets that paid off tend to dominate conversations—while losses or missed opportunities are downplayed or left out entirely.

The result is a kind of selective social benchmarking: investors may measure themselves against an inflated image of others' success, leading to feelings of inadequacy, regret, or fear of being left behind. Studies by researchers including Hong, Kubik, and Stein have suggested that perceived peer success can influence individual investment behavior—sometimes prompting increased risk-taking or performance chasing.

These emotional reactions are often driven more by how performance is framed than by actual outcomes. This comparison approach might potentially distort perceptions and lead to decisions that may be inconsistent with long-term goals when investors compare a well-diversified portfolio to inappropriate benchmarks or incomplete pictures of peer success.

Historical Examples and Market Observations

Historical market cycles show how bullish investor psychology can influence behavior. Federal Reserve Chairman Alan Greenspan's well-known reference to "irrational exuberance" in December 1996 occurred during the dot-com boom, highlighting concerns about emotional decisions amid rising prices rather than falling ones.

Similarly, Citigroup CEO Chuck Prince's July 2007 comment that "as long as the music is playing, you've got to get up and dance" reflected the feeling that many felt pressured to take increasing risks during the late stages of the housing bubble's bull market phase.

More recently, phenomena like meme stock trading and various speculative frenzies have shown how bull market conditions can sometimes lead to behavior that strays significantly from traditional investment analysis.

The Data on Investor Behavior

Long-term studies of investor behavior suggest that emotional decision-making can significantly affect investment outcomes. Research firm DALBAR has historically documented that average investor returns tend to lag behind market indices over long periods, with much of this difference potentially attributed to behavioral factors, including poorly timed buying and selling decisions. However, individual investor experiences may vary considerably based on personal circumstances, market conditions, and other factors.

Interestingly, historical data indicates that bull markets usually last much longer than bear markets. Past market analysis suggests that bull markets have averaged approximately 2.7 years in duration, while bear markets have lasted around 9.6 months on average. This historical difference in duration means investors have often faced extended periods where bull market psychology might influence their decision-making, though past patterns do not guarantee future market behavior.

Potential Gaps in Traditional Risk Assessment

Most investment risk questionnaires mainly gauge an investor's comfort with declines in their portfolio. Investors are often asked how they would respond to a 10%, 20%, or 30% decrease in their account value. While this gives helpful information, it might not fully reflect how an investor could react in different bull market scenarios.

For example, risk questionnaires rarely explore how an investor might react if their diversified portfolio was generating solid returns but was significantly underperforming a concentrated investment that friends or colleagues discussed. Similarly, these assessments typically don't address how likely an investor might be to increase their risk exposure during a sustained market rally.

This creates a possible gap in traditional risk assessment. Investors might be mentally ready for market downturns but less prepared for the psychological aspects of strong bull markets.

Maintaining Perspective During Market Rallies

This analysis does not imply that market optimism or bull markets are inherently problematic. Rising markets are a normal and generally healthy part of economic cycles, and many investors appropriately benefit from disciplined participation in long-term market growth.

However, just as fear-driven decisions during bear markets can potentially harm long-term results, emotionally-driven changes to investment strategy during bull markets may also pose risks to reaching long-term financial goals.

One way to stay focused during volatile market times is to regularly review the original purpose and timeline of an investment plan. Instead of judging success only on short-term market moves or comparing results to others, investors might consider measuring progress against their specific financial goals — like retirement income needs, education savings goals, or other personal targets.

It can also be helpful to remember that market conditions naturally change over time. Investment strategies that seem very successful during one market environment may perform differently when conditions change. As the saying goes, trees don't grow to the sky.

Implications for Long-Term Investment Planning

The difficulties of maintaining investment discipline affect both bull and bear markets, although the specific pressures are different. Most investors expect to be reminded to "stay the course" during market declines, but fewer might expect to need similar discipline during market gains.

While research shows that behavioral biases intensify during bull markets, the relative long-term impact of investment decisions made during favorable versus unfavorable market conditions remains an area where more definitive research is needed. By understanding that consistently following a well-designed investment plan may remain important regardless of market trends, investors might improve their chances of reaching their long-term financial goals.

This perspective doesn't lessen the real challenges that bear markets bring—including the genuine difficulty of maintaining discipline during significant portfolio declines, the emotional stress of paper losses, and the temptation to abandon long-term strategies during market volatility. Bear markets present their own substantial psychological hurdles that require considerable discipline to navigate successfully. Rather, this analysis suggests that both market types come with distinct psychological challenges that deserve consideration in comprehensive investment planning.

Conclusion

While bear market discipline receives considerable attention in financial education and planning, bull market discipline warrants equal focus. The prolonged nature of typical bull markets, along with the psychological pressures and comparison traps they produce, suggests that maintaining investment discipline during favorable conditions may be more difficult than often assumed.

Investors and their advisors might benefit from discussing not only how to manage market declines but also how to stay focused during market advances. By understanding both the general psychological pressures and specific comparison dynamics that bull markets create, investors can be better positioned to stick to their long-term financial plans regardless of market conditions.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of any firm or organization. This material is provided for informational and educational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any particular security or investment strategy. Past performance does not guarantee future results. All investments carry risk, including the potential loss of principal. The research and market data referenced may not apply to all individuals or market conditions, and investment outcomes can vary significantly based on personal circumstances, market timing, and numerous other factors. Individual investor experiences may differ materially from historical averages or academic studies. Investors should consult with qualified financial professionals before making investment decisions and should consider their own financial situation, investment objectives, and risk tolerance. Although the author is a CPA and holds the PFS credential, no professional services are being offered through this article. The content may include information from sources believed to be reliable but is not guaranteed and may be subject to change without notice.

Copyright: © 2025 Jean-Luc Bourdon, Original text, structure, organization, and editorial revisions created by the human author. The author used AI as a drafting tool, but exercised creative control by rewriting, restructuring, and contributing original analysis, tone, and expression. Disclosure in accordance with U.S. Copyright Office guidance on AI-assisted works.