Tips for Investing in a Down Market
Eric Tyson and Tony Martin
Published on Monday, Feb. 08, 2010 1:31PM EST Last updated on Tuesday, Feb. 09, 2010 7:29AM EST
This is the final part in a series of 10 excerpts from Investing for Canadians for Dummies.
Identify Your Portfolio’s Problems
Stock market declines can be efficient at quickly exposing problems with your portfolio. For example, when technology stocks fell in the early 2000s, we started receiving questions from investors who had invested on these stocks and wanted to know what they should do with their holdings. Several of these investors kept pondering about how much more their technology stocks were worth at their peak before it declines.
Our advice was to accept the huge risk these investors were clearly undertaking by putting so many eggs in one basket. We also emphasize the dangers of going after a hot sector, and pointed out that what is a hot sector today often becomes tomorrow’s straggler.
In addition to poorly diversed portfolios, a stock market that’s declining can also expose the huge fees you may be paying on your investments. Few investors care about getting hit with fees amounting to, say, 2% annually when they’re making 20% year after year. But after a couple of years of low or negative returns, such huge fees become quite painful and more noticeable.
Avoid Growth Stocks If You Get Queasy Easily
In a sustained stock market decline, the stocks that get whacked the most tend to be the ones that were most overpriced from the period of the previous market rise (bull market). Like fad products such as hula hoops, pet rocks, and Cabbage Patch dolls, in each bull market, specific types of growth stocks, such as biotechnology companies or Internet companies, can be especially hot.
Tune Out Negative, Hyped Media
When the stock market is falling, such as the huge declines seen in latter 2008 and early 2009, subjugating yourself to a daily dose of bad news and adverse opinions about what the next move is makes most investors do the wrong things. When major stock markets are really failing, it’s not uncommon to find people saying something along these lines: “It seems as though the civilized world as we know it is coming to an end.
VIA The Globe and Mail
Keyword: Stock Investing
Eric Tyson and Tony Martin
Published on Monday, Feb. 08, 2010 1:31PM EST Last updated on Tuesday, Feb. 09, 2010 7:29AM EST
This is the final part in a series of 10 excerpts from Investing for Canadians for Dummies.
Identify Your Portfolio’s Problems
Stock market declines can be efficient at quickly exposing problems with your portfolio. For example, when technology stocks fell in the early 2000s, we started receiving questions from investors who had invested on these stocks and wanted to know what they should do with their holdings. Several of these investors kept pondering about how much more their technology stocks were worth at their peak before it declines.
Our advice was to accept the huge risk these investors were clearly undertaking by putting so many eggs in one basket. We also emphasize the dangers of going after a hot sector, and pointed out that what is a hot sector today often becomes tomorrow’s straggler.
In addition to poorly diversed portfolios, a stock market that’s declining can also expose the huge fees you may be paying on your investments. Few investors care about getting hit with fees amounting to, say, 2% annually when they’re making 20% year after year. But after a couple of years of low or negative returns, such huge fees become quite painful and more noticeable.
Avoid Growth Stocks If You Get Queasy Easily
In a sustained stock market decline, the stocks that get whacked the most tend to be the ones that were most overpriced from the period of the previous market rise (bull market). Like fad products such as hula hoops, pet rocks, and Cabbage Patch dolls, in each bull market, specific types of growth stocks, such as biotechnology companies or Internet companies, can be especially hot.
Tune Out Negative, Hyped Media
When the stock market is falling, such as the huge declines seen in latter 2008 and early 2009, subjugating yourself to a daily dose of bad news and adverse opinions about what the next move is makes most investors do the wrong things. When major stock markets are really failing, it’s not uncommon to find people saying something along these lines: “It seems as though the civilized world as we know it is coming to an end.
VIA The Globe and Mail
Keyword: Stock Investing
