Historic Look At Following The Herd Or Worse, The ‘Experts’, When Investing!

Whether it’s stocks, bonds, real estate or politics, who do you take your decision-making cues from!

Is your decision-making based on what everyone around you is doing or worse, from what the so-called ‘experts’ are telling you to do?

This type of strategy can often be a mistake because the truth is that both individuals and those who advise individuals are for the most part trend followers as opposed to independent thinkers!

Following The Herd, A Look Back At History!

Here are a few examples of trend following from the past that didn’t necessarily workout that well…

1) At the end of 2015, December 18th to be exact, and in one of the most anticipated movie releases of all time Star Wars hit the theaters. Some crafty investors figured that this could only mean an upside move in Walt Disney stock forgetting about the age-old Wall Street adage, buy the rumor and sell the news.

2) The deflating of the technology stock bubble around the turn of the century was portrayed as an incredible buying opportunity or, as analysts love to say, great stocks were being offered on sale. These same analysts made a living and, in some cases, a reputation helping to run these stocks to nosebleed prices based on few fundamentals that could support them.

Using Yahoo as an example, this price chart shows how what goes up for few fundamental reasons can come down, come down hard and stay down!

3) Real estate pre-financial crisis went in one direction…up! And post-crisis, as many of those who played that game came to realize the hard way, markets have and always will move both up AND down based on a variety of factors. Key among those factors in real estate is, of course, the ability to pay the mortgage!

4) The price of crude oil and natural gas plunged in 2015 with stocks of companies doing business in that sector getting hammered! Some analysts pounded the table on these stocks insisting that a turnaround in the price of the commodity was right around the corner and that dividends were safe. Kinder Morgan (KMI) was one of the beloved investments until the ‘safe’ dividend was cut.

For 2016 you will be told…

1) Which candidates are inevitable,

2) China will avoid recession,

3) Stocks like Apple are a good buy at these levels,

4) Real estate prices will continue to firm and creep-up while foreign buyers from countries like Russia and China will continue to be buyers.

And, at least when it comes to Number 4, I hope that the analysts are correct as my company makes its living here!

Bottom line? Do your own research and learn the facts whether it concerns your money or whether it concerns who will be in the White House next!

Related Article

Monday Morning Links: Why Are Stock Futures Down Over 300 Points*? (January 4, 2016)

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.