WEEKLY CARICOM STOCK REPORT 29 October to 2 November 2012

UWI, Cave Hill,Barbados

Investing School (Be Brave and Don’t Follow Fashion)

One of the most enduring realities in investing is the fact that most small investors seem to end up buying stocks at the top of the market and selling at the bottom.  One of the major reasons for this is the fact that investors seem to let their emotions dominate when making investment choices. Two emotions in particular seem to dominate when making investment decisions:: fear and following the crowd.

First, let’s talk about following the crowd, what West Indians call “follow fashion.” The adverse effect following fashion has on investment results is rather straightforward. When a person sees others do well in an asset class or stock, he or she decides to jump on the bandwagon and buy some too. What tends to happen is that by the time “follow fashion” people invest in the stock, the stock’s price has ran up so much that it has become overvalued. Of course, the bubble eventually breaks and people that bought at the top lose a lot of money.  “Follow Fashion” people end up buying at the top of a bubble.

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0 thoughts on “WEEKLY CARICOM STOCK REPORT 29 October to 2 November 2012

  1. Happy for the return of investment school !!! Fear and ‘follow fashion’ seem to be major determinants of the performance of stock markets. Not sure how persons can get past this…Trading stocks seems to be for the brave at heart.

  2. It would indeed be interesting to know. I think that the investment firms are the ones really making the decisions. And I sometimes wonder if they really analyse the prospects before they ask persons to invest or if they more interested in meeting their quotas.

    • @ David
      Not sure. In this hard guava season investing in the stock market may not be on the list of priorities of ordinary persons. But I think that reports like the one UWI is doing, especially the investment school part are a step in the right direction.So that when persons are ready to get their feet wet, they will be well informed.

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