WHY ARE INVESTORS DOING STUPID THINGS?

Most of the investors, more than 90% are losing their money in the markets. That is the fact. They love their stocks when they make money, but they could hate the same stock couple of days later when it makes loss.

In the investment business when we buy any stock or asset we have to handle those 3 following questions:

1. When to buy?
2. Which asset to buy?
3. How big position to buy?

Start with the first question. When to buy? Most of the investors always buy the trendy stocks and assets. Like as the Gallup poll shows recently the investors concerns about stocks is shrinking. Now picked by 24% same as for gold. This number is needed to be answered why the folks are still scared to invest into the stock market? The reason is that they still remember well for the „lost decade” between 1999-2013 when the market hasn’t make any performance.

Now the DJIA is at 16.500 and they don’t want to own stock because they do believe that the market is pricey. I am pretty sure if the DJIA jumps up within 1-2 years to 20.000-25.000 area, these same investors wouldn’t think is pricey they want to own it at that time. They will think is cheap. The point is that most of us are horrible market timer buy the high and not the bargains in most cases.

The second question is the asset. Which asset to buy?

Most of the investors still believe in gold as the chart shows above, but that doesn’t make any sense. In the last 25 years since 1988 the annualized return of gold has been only 1.6%, for S&P500 has been 7.9%. Forget the real estate and gold investment in the 20th century the big money you could make in stock markets. So, why most of small investors choose the gold to buy? Probably they think that they don’t have the skills to figure out which stock fund to choose. I wouldn’t say the stocks are not risky. But that is why we could make far more money than on any other assets.

And now we goes the 3rd point. How big position to buy? If your position size is not crazy big and you have a proper money management like never invest in one certain stock more than 5% of your capital, you can survive all the big corrections and you can be on the winning side.

DO YOU WANT TO EARN OVER 30% PER YEAR?

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The BFM Assets Team.