Today more than ever, investors have access to a wide range of investment opinions through TV, 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. Such various investment opinions swirling around conveying many different messages confuse the minds of ordinary investors each day. Financial information, if not used properly, can be negative for the markets and investor portfolios.
Each day, many analysts appear on various television networks explaining what their current recommendations are, most discussing what they would and would not own at this time. These opinions highly influence the average investor, prompting them to buy or not to buy an 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 the investor, your goals, objectives or time horizon. Analysts, economists and other market experts are making general observations based on what their research reveals on a given day. This information may not be right for an investor, or in some cases may actually be detrimental to what the investor should be doing based on their own goals and objectives.
When 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 mutual fund is made up of. This can also be somewhat misleading as the manager of that mutual fund may have purchased that investment for the fund many months or years ago and is currently selling or reducing the fund’s exposure. 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. Meanwhile, 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 change 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, in my opinion, the only way to make money is to buy quality investments, set your targets or sell out price, and hold until the quality of the investment is realized and your target reached. All investors should consult an investment advisor 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 personal 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 few years 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 Advisor 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.
