Saturday, 23 June 2012
The time to BUY is actually when shares have been beaten down by the market.
Why the panicking crowd has got it wrong
Let's face it, even the most optimistic analyst would say that the volatile conditions of 2011 are likely to continue over the next year or two.
Whatever our politicians might hope for, the eurozone's problems of high national debts and a tepid economic recovery aren't going to go away any time soon.
So, what's an investor to do?
Sadly, history already tells us what many investors are doing: cutting and running, deciding that the stock market isn't for them, and taking their losses on the chin.
Research shows that time and time again, private investors pile into equities at too high a price...when shares have already shot up way too far... And they get out at a price that's too low... often just before they start to recover again.
If that's not wealth-destroying, then I don't know what is.
For example, UK investment author Tim Hale has pointed out that in 1984-2002 – a bull market when the equity markets turned $100 of spending power into $500 – private investors turned that same $100 into just $908.
A 2007 study of UK investors over the period 1992-2003 found that the returns of private investors were around two percentage points a year lower than the funds that they were invested in...9
These feeble returns are all thanks to the fuzzy thinking of a crowd that follows their emotions, rather than using clear-headed analysis.
They wrongly believe that you buy shares when they're going up and you get out of the market when they're hitting rock bottom.
Here's why this is wrong – in fact, the time to BUY is actually when shares have been beaten down by the market.
That is, of course – if you know what to look for...