It seems that a lot of investors are exploring their new found wealth, and that's a good thing. Something nags at me though about the propensity for over-indulgence that appears with all of this new abundance. Maybe I am being a bit pessimistic, dare I say even cynical, to bring this up, but I get a lot of questions everyday, from people new to investing who want to know when to sell, what they should look for, etc. Further, I see a lot of people snapping up stock options like they were candy and while all of this good and can be really profitable, I was reminded today by an article I read. The article, in the Investor's Business Daily, was by Loren Fleckenstein. He reminds us all of something I have written and spoken about many times...being an unemotional investor.
To some, "Greed is good" is a credo, a principle almost, to stand behind. However greed is a powerful emotion and can make one do things one would not normally do, like be overly optimistic about a stock's performance. Hey, I am all for optimism...it's what gets us out of bed in the morning, but remember, too much, and you won't see the forest for the trees. Another powerful emotion Fleckenstein points out is fear. Selling in panic is not unemotional investing. It can be at best, regretful, at worst, breaking. There is an upside to all of this emotion...taking advantage of the market's greed and fear. As Fleckenstein explains it, "Greed can appear in individual stocks, often in the form of a climax run. After a long advance, a stock's rise may accelerate and score an additional 50% gain or more in a few days or weeks." Remember to see the greed, and not become a part of it, and then sell before that stock goes back to where it came from. On the flipside, you can profit by recognizing fear in the market. When everyone (well, everyone except for you savvy folks) bolts on a stock, seize that opportunity to buy (assuming the stock checks out with all of your other vital research first!).
