Stock Investing: Is it too late to run with the bulls?

Posted 26. Jun, 2009 by Lorraine James in Stock Investing

running with the bulls Stock Investing: Is it too late to run with the bulls? I came across a ‘financial advisory’ website this morning and wondered how many people find themselves in a similar predicament to one investor desperately seeking some answers.

This particular investor had sold all of her stock holdings in a panic quite near the recent market low (some call it the bottom…) and transferred what’s left of her dwindling nest-egg into bonds to try and recoup her losses more rapidly. To her horror, share prices have since boomed and treasury bonds have taken a dive. Now in even more of a panic, she’s wondering if it’s too late to sell her bonds and jump back into the stock market.

The demise of the average investor is PANIC and they often forget that the stock market is not a train leaving the station or a ship leaving port. So when stock investing, you don’t need to take a flying leap to jump on before the market disappears out of sight.

The Stock Market will always present us with good investment opportunities, even despite what the doomsayers predict. When stock investing, you need to realise there are four stages of market movement that have been repeated time and again since the market began and will continue to do so in the future:

1) The bottom – is dominated by indecision and bargain hunters come into play

2) Uptrend – investors follow the crowd, greed drives prices up.

3) The top – is dominated by indecision and profit takers leave the game

4) Downtrend – investors follow the crowd, fear causes them to sell and prices fall.

Accept that history tends to repeat itself and prices will always follow these four movements and the see-saw of your portfolio value won’t bother you quite so much over the shorter term.

There is no need to make hasty decisions or drastic moves and beware of people who advise you to invest aggressively to make up for losses or those who give you hot tips for what’s about to happen.

Who would you trust to take your body temperature precisely, a doctor sitting right next to you or a nurse trying to take your temperature over the phone?

And just like the human body, the stock market itself can tell us whether it’s overheated, fairly valued or under valued. A confident trader/investor need only use an historical chart and selected technical analysis tools to create a fairly reliable future projection.

When it comes to stock investing, the best returns don’t come magically from the most volatile investments, they come from buying undervalued shares and staying patient.

Consider applying Warren Buffett’s approach to your share portfolio. Buffett has not been ranked number Stock Investing: Is it too late to run with the bulls? one on the world’s rich list through ‘get rich quick’ schemes. He has created a current net worth estimated at $62Billion through diligence, discipline and patience.

Buffett buys into stable, reliable companies that have a durable competitive advantage at a time when no-one else is interested in them so they present very good value.

Paul Howard, Berkshire Hathaway analyst at Janney Montgomery Scott, puts it simply – “He finds names that are out of favour, or where people just don’t see the longer term profit potential. He has a longer term horizon than the majority. If you have patience, and others don’t, you can wait things out.”

So are we too late to run with the bulls?

Well what’s interesting right now is that many of the world’s stocks that have recently climbed steeply in price are actually considered riskier stocks. And where Buffett tends to invest in the blue chips with strong cash flow, many of those have been left on the sidelines.

So if you’re happy with a “get rich quick” investing strategy that may only work when the market is doing one particular thing – blow your money there, however, if you’re serious about your commitment to achieving financial freedom then it may be wiser to follow the footsteps of the master who’s already at the top.