Lessons Learned from the Stock Market
If you pay attention to the stock market, you can learn some valuable lessons:
The market tends to revert to the mean. When the stock market has an extended period of above or below average returns, it has a tendency to revert back to the average return.
Don’t chase performance. Investors often move out of sectors that are not performing well, moving money to investments that are currently high performers. But the market is cyclical and often those high performers are poised to underperform, while the sectors just sold are ready to outperform. A classic example is technology stocks in early 2000.
Avoid strategies designed to get rich quick in the stock market. The stock market is a place for investment, not speculation. When your expectations are too high, you have a tendency to chase after high-risk investments.
Don’t avoid selling a stock because you have a loss. When selling a stock with a loss, an investor has to admit that he/she made a mistake, which is psychologically difficult to do. When evaluating your stock investments, objectively review the prospects of each one, making decisions to hold or sell on that basis.
Make sure an investment will add diversification benefits to your portfolio. It’s common for investors to keep adding investments that are similar in nature. This does not add much in the way of diversification, while making the portfolio more difficult to monitor.
Check your portfolio’s performance periodically. Compare your actual return to your targeted return when setting up your investment program. Now honestly assess how well your portfolio is performing. Are major changes needed?
No one knows where the market is headed. So don’t pay attention to gloomy or optimistic predictions. Instead, approach investing with a formal plan so you can make informed decisions with confidence.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.