More than ever, investors have access to a wide range of investment opinions through T.V., radio, newspapers and the Internet. They are reading about what one analyst has to say, which is often contradictory to what the next investment expert says — a swirl of opinions conveying many different messages befuddling the minds of ordinary investors each day. Financial information, if not used properly, can be negative for the markets as well as investor portfolios.
Each day, many investment analysts appear on television networks explaining what their current investment recommendations are. Most discuss what they would and would not own at this time — highly influential opinions that can push an average investor toward either buying or passing up a given investment. However, before investors react to information, they need to keep in mind that these analysts are discussing a current snapshot of an investment today and not necessarily the benefits or shortcomings of that investment for the future. Analysts don’t have to discuss where that investment will be in 12, 18 or 24 months. Most importantly, they do not know you as an individual; your goals, objectives or time horizon. Analysts, economists and other market experts are making general observations based on what their research reveals today. This information may not be right for an investor, or in some cases may actually be detrimental to what an investor should be doing based on their own goals and objectives.
When various money managers appear in the newspapers or on television with their recommendations, it is very important to know if they themselves already own the investments they are recommending. These managers may own the investment in their portfolios and they are recommending it to hopefully get others to buy it to drive up the price. This is why full disclosure should always be listened for when a recommendation is given. It is usually mentioned at the end of the interview or during the presentation.
There are many websites that investors have access to that show rankings for different investments. Some of the more popular mutual fund websites even show the top investments that each fund is made up of. This too can be somewhat misleading as the manager of that mutual fund may have purchased that investment for the fund some time ago, and is currently selling or reducing the fund’s exposure. So, an investor comes along and reads that this mutual fund has this investment in its top ten holdings and starts buying it because they trust the manager of the mutual fund while the manager thinks the price is too high and is selling out. Therefore before you know it, the investment is sold off, the price drops and the investor is left wondering what happened.
In this current fast paced market environment, investment targets can be changed so quickly that investors have very little chance to keep up. On a day to day basis, it is very difficult to predict how an equity investment (stock or mutual fund) will behave due to the fear and greed investors act upon at any moment. Therefore, the only way to make money is to buy good quality investments and hold them until the quality of the investment is realized. All investors should consult an investment adviser to discuss objectives, risk levels and time horizon before considering any investment. Investing money today is a lot more difficult than looking through websites or watching what analysts say on television. It involves understanding how investments work, what investor’s goals are and making sure you are in the right investments to achieve those goals over time. Too many investors have access to financial information which they do not necessarily understand, and it is driving them to make the wrong decisions. This can easily affect their portfolio’s performance and the pricing of the overall stock market. The last six months of volatile markets has proven this valuable lesson to all investors.
If you have any questions regarding the above article or are looking for an Investment Adviser to help you with your portfolio, please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you!
Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.
