Everyone has heard these phrases and I for one heartily agree that ‘Following your gut’ is the Divine’s way to guide us and it should never be ignored when it pertains to our personal life. ‘Following the market trend’ however, is appropriate when analyzing and studying the equity markets.
Many investors ‘Follow the crowd’ but the quandary is always – what crowd do you follow?
When someone unfamiliar with investing becomes involved with their company’s retirement plan, a 401K let’s say, they may ask the ‘Financial person’ who oversees new enrollee's investment for advice. They may ask a coworker, or they may place their future into what sounds ‘nice’!
There is an alternative to the above dilemma and that is subscribing to GaneWisdom/Market Edge.
Many financial advisors suggest, encourage actually, to buy a good sold investment and hold onto it. If that is what someone is comfortable with, has the time to wait out market reversals, and has no interest in managing their money, buy and hold is the best course of action.
Following the trend is not forecasting the future – something no-on can do with 100% accuracy. It is about riding the wave, taking advantage of apparent upswings for as long as they continue, and hopping off the train when the trend fizzles out or when a sudden reversal in the trend occurs.
What are some of the consequences of ‘going it alone? To answer that let's take a look at how a very simple approach of investing takes place:
A person buys a stock because they believe that someone will pay more for it than they did. As other people notice the stock rising, they buy before it gets too expensive. This buying (and selling) continues as the price increases. This is an example of ‘Market Sentiment’ in its simplest form. This is an ‘uptrend’ taking place. But alas, there comes a time when someone somewhere will be holding a one-time valuable stock that no-one is interested in any longer. Now a ‘downtrend’ is forming. Instead of selling and taking a small loss our investor decides to hang in there (there’s those emotions coming up again). At some point the pain will become unbearable and our man will sell, perhaps at a huge loss. He ‘believed’ that the stock would come back (never realizing he could buy back in if it began to show life again). It didn’t.
Carefully observing market trends can be very beneficial. As an added source in making investment decisions, a subscriber to GaneWisdom/Market Edge is able to consider the path most conducive to their individual financial goals.