FINANCIAL FOCUS
Every year in early July,
thousands of people “run with
the bulls” in Pamplona, Spain.
While the event is exciting, it is
also hazardous, and many runners
have gotten badly injured over the
years. As an investor, you may
find that running with the herd is
dangerous to you, too — because
if you’re constantly following what
everyone else is doing, your own
financial goals could end up getting
“trampled.”
The urge to run with the herd,
or follow the crowd, may have
been hard-wired into our psyches,
according to anthropologists. In
prehistoric times, running with
the pack may have helped people
minimize danger or increase their
chances for finding food. But
today, there are far fewer rewards
for following a herd mentality —
especially in investing.
For example, consider what
happens when the financial
Don’t Get Trampled
by the “Herd”
markets go through a period of
volatility. Virtually every time this
happens, many investors flock to
gold, apparently believing that the
shiny yellow metal will always be
valuable and that its price will never
drop. Yet, the fact is that gold prices,
like those of other financial assets,
do fluctuate. Furthermore, certain
types of gold-based investments can
be quite risky in their own right.
What other “follow the herd”
movements should you avoid when
you invest? For one thing, try to
stay away from “feeding frenzies.”
If you look back about 15 years
ago, you may remember the buzz
surrounding speculative technology
stocks — many of which were
companies that had futuristic names
but lacked some useful elements,
such as profits or business strategies.
For a few years, the prices of these
companies soared, but in 2000 and
2001, the “dot-com” bubble burst,
splattering investors with big losses
JULY 2015
PA R K E R C O U N T Y T O D AY
“Italian so authentic, it’ll make you
talk with your hands”
76
“I’ve tasted pizza all
over Italy, and this is
my favorite in
Weatherford.”
Bennett
Moorman
that were either irreversible or, at
the least, took years from which to
recover.
The herd mentality often applies
even when investors know the
right moves to make. To illustrate:
One of the most basic rules of
investing is “buy low, sell high”
— and yet many investors do the
exact opposite. When prices drop,
they sell, so that they can cut their
losses — even though they may
be selling investments that, while
temporarily down, still have strong
potential. On the other hand, when
an investment’s price has shot up,
these same investors will often
keep buying more shares, hoping
to reap even bigger gains — even
if the investment has now become
quite expensive, as measured by the
price-to-earnings ratio, and has little
upside potential remaining.
Instead of emulating other
investors, think about your own
financial goals and create a viable
strategy for achieving them, taking
into account your risk tolerance
and time horizon. Look for quality
investments and hold them for the
long term. Don’t be discouraged by
the inevitable market downturns,
but be ready to adjust your portfolio
as needed. Above all else, be
patient and disciplined, always
keeping your eye on your ultimate
objectives.
It can feel comfortable when
you’re in the midst of a herd — but
it can lead you to places where, as
an investor, you don’t want to go.
Steer clear of the crowds and go
your own way.
This article was written by Edward Jones for
use by your local Edward Jones Financial
Advisor.
For a free, personalized college cost report
Mike Smith
Age 10
Pizza enthusiast and
world traveler
Financial Advisor
.
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Willow Park, TX 76087
817-441-9439
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