- August 18, 2020
Individual investor confusion is ever-present in today’s investing landscape. Natural human emotion serves as a catalyst for poor decision making causing average investors to chase momentum and short term performance. These short term reactions could be detrimental to long-term investment results. Let’s explore 3 schools of thought of investors and traders that we see today.
The first is that of “momentum” investors. Momentum chasers view stock market moves of today or this month will carry into tomorrow or next month, especially if there is a high volume of trading to support the trend.
A second point of view is the belief that market timers are likely to quickly act to buy dips in the market or sell rallies to take profits which in turn reverses the price direction for the stock from one period to the next. Essentially this school of thought assumes that what goes up must come down.
The third school of thought, and the one that Volition Financial Network is enrolled in, is that stocks are not serially correlated to any meaningful degree. That is to say, what happens in the short-term has little to no influence over what happens in the long-term, and that market returns are independent over time.
There is a shared concern of myself and that of portfolio management teams in which Volition Financial Network maintains strong relationships. Too many investors are basing their outlook for stocks on past performance. This is evident as investors become more bearish following steep short term declines, and more bullish during abrupt market rallies. This is the type of thinking we strongly advocate against for given our long-term investment approach. Any changes to portfolios are based on long-term goals, and those changes should be made gradually over time.
During volatile times it is important to communicate any changes in your financial situation, long-term goals, or if you are expecting a significant life event that will influence your investment strategy. This will ensure your portfolio aligns with your investment objectives.