If You Follow the Herd, You Will Get Slaughtered.

During the turbulent times we have and are experiencing there will be ‘experts’ telling you what is the best place for your money.  It could be gold, annuities, real estate or even a pyramid scheme……..or alternative investments like hedge funds or Private equity.

Sometimes it means concentrating your portfolio in on one or a small amount of hot performing asset classes. It could be all U.S. stocks or all U.S. large stocks or all emerging market stocks or all international stocks or……

Right now, the U.S. stock is in its longest bull market in history. Does this mean U.S. stocks will slide in to a bear market? I have no idea.

In the news right now is alternative investment vehicle Private Equity. Apparently some small investors have wrecked havoc on some large private equity firms. They can also be called hedge funds.

Private equity firms are for accredited investors only, sophisticated investors. The potential reward are great along with the potential risks. One PE firm lost 53% in a two week period. These PE firms are not regulated like mutual funds, in fact they have very few regulations.

Private equity firms can utilize any asset class and the can make money when the market goes up or when it goes down. Which means you double your chances of gains but also double the chances for losses.

Whenever there is fear in the air someone has the answer for your investments.  This is a very dangerous time to be speculating.

If an investment strategy is on the cover of every magazine, and all of your friends and associates are doing it, it’s reckless to follow suit.  Only hot, sexy, and speculative techniques make the cover.  Don’t follow your friends!

Remember the most successful businesses have one strategy and they stick to it. Such as McDonald’s, if you visit a McDonald’s anywhere in the country, they are all set up the same. They know there may be a better way to run a restaurant but their systems works for them.

Warren Buffet is another example, he has one way of investing and it has made him the most successful investor of our time. There are times when he losses more money than most but over the long term he wins. He does not fall for the latest fad.

As an investor you may be tempted to change your investment mix to accommodate current events. This is call market timing and it has been proven not to work. You may get lucky in the short-term but you will eventually fail.

To succeed in investing for the long term you should own equities….globally diversify….rebalance.  The key is to remain disciplined to this strategy.

Leave a Reply

Your email address will not be published. Required fields are marked *