19 Noiembrie 2009
10 important donts in post-recession planning
Almost a year since the onset of the stock market crisis, investors and brokers have learned some valuable lessons. Wall-Street has interviewed stock market specialists and compiled a list of top 10 mistakes to which investors can fall victim in post-recession planning.
# 10 Don't think approach is more important than reality
“The fact that second-string elements on a scale of micro to macro influences, turn positive in case of a company, doesn’t mean that as long as management’s approach to market and economy doesn’t change, it will have an impact on the share price”, said the manager of Confident.
He gives the example of Dinu Patriciu who became a magnet of mistrust due to his neutral approach to the future performance of the market or local investors’ great indignation over Standard&Poor’s and Fitch’s country rating-cutting actions on major economic imbalances and sharp decline in international capital flow.
#9 Don't take an idealistic approach to crisis
The pessimists saw it coming but what they couldn’t see was its magnitude. Optimists didn’t believe in it, but acknowledged its violence and took precaution.
“That is when economies spring back to life, optimists tend to act first, but they are also the ones to take out their money at the first wisp of cloud, while pessimists don’t rush into buying stocks or investing at the first snowdrop signaling the first stirring of economic spring”, said Nicolae Ghergus.
#8 Don't take a distant twist
Gabriel Aldea, broker at Intercapital firm, says crisis-hit investors don’t have the ability to identify the opportunities to recover losses and restructure its portfolio so as to optimize return.
#7 Don't rely on the market's capacity to rebound
You don’t invest in history but in reality, Gabriel Necuta, broker at Prime Transaction says. Economic indicators of companies must echo the current economic conditions and present attractiveness in this market environment, and not of that of few years ago.
“Any investment must rely on the fundamental arguments of a company, rather than immediate reaction of the market”, Necula pointed out.
#6 Don't get emotional about your investments
“You must avoid acting on extremes, and not fall into the trap of being too pessimistic or too optimistic. Fear and greed must never drive investment decisions. Acting rationally will always lead to profits”, says Gabriel Necula.
#5 Don't invest on your own without knowing the market
“Some investors decide to take it on their own, even if they don’t have enough experience or if there is no clear relation between him and the broker, or if the investor prefers not to pay for advisory services”, says Gabriel Necula.
#4. Don't put your eggs in one basket
A very cautious basket can minimize profits. “Some investors put their bets on defensive stocks even when the market is growing, although a stock portfolio should normally focus on dynamic companies”, says Gabriel Aldea.
#3 Don't trade on tips or news
Investors must not be influenced by the bad news piling up from the real economy and expecting the market to plummet or go back to crisis' troughs.
“In this situation, investors forget that the stock market is the barometer of the economy, as it heralds its future performance”, Gabriel Aldea says.
#2 Don't take a "Buy and Hold" approach
The pre-crisis macroeconomic theories don’t apply anymore in the current landscape, because any major crisis causes drastic changes in investors’ mindset and in market regulations, permanent downtrends, and reorientation of strategies.
#1 Don't think that stock market is an Eldorado
New investors think returns can be easy to achieve. “Short-term returns creates the impression that profits are easy to make, and thus increase investments, without taking into account the possibility of loosing alike”.