Don’t follow the bull market hype: Over time markets will go through cycles and the pack of investors will go through periods when they invest in quality and use a more selective and risk adverse approach to their stock picking. But as their confidence grows in a rising market, these investors can get carried away.
As the market continues to grow beyond expectations so does the inexperienced investor’s frenzy to follow the latest fad and fashion.
These investors get so caught up with the prospect of making a quick buck, they fail to follow a rational investment strategy undertaking a fundamental evaluation of stock.
Shares are bought and sold on the basis of tips and superficial knowledge, investing without clear understanding and calm reflective thought. Investors seem to have an almost infinite capacity at times to believe in something too good to be true.
It will, at some point, dawn on the crowd that some players have cut their losses and figured out that things have gone too far.
Like sheep, group panic sets in as everyone runs for the exit.
Unfortunately, the aftermath of these bull markets is not a pretty sight and most of the followers go home empty handed.
My advice would be to stay clear of the markets that have lost touch with the fundamentals. Don’t try to play the greater fool game – buying even though you are not convinced of the fundamental value in the hope of selling the stock on to someone else before the market decline comes – you might end up being the biggest fool.
Don’t forget history’s lessons
A value investor requires a
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