— “Ahead of the Street” Column, by Mitchell Clark, B. Comm.
It is a simple fact of nature that people like jumping on a bandwagon. Very few investors have the courage to endure a buy-low/sell-high investment strategy. Most prefer to buy high and try to sell higher. This happens across the board in all capital markets. Currencies, bonds, stocks and commodities all become over-enthused by bandwagon investors. If this investment strategy consistently works for you, then that’s great. What I’ve learned over the years is that no one investment strategy works all of the time. You have to alter your approach to capital markets depending on the sentiment of the time.
I’ve also learned that upward price movements, particularly in equities, tend to occur in waves. Clearly, there is a time to be sowing new investments and a time to be reaping from them. Of course, this takes patience on the part of the investor.
I remember when the technology bubble was at its height in the late 1990s. Our office was continuously swamped with inquiries for any and all new stock-picks. Everyone just had to get in on the action, especially at the very top of the market. It didn’t make any sense. Then it all came apart and the very high-flying stocks that investors wanted to own dropped the most.
There’s an old saying in investment circles that I believe in. In effect, it says that, by the time a story is in the newspaper, the best part of that story is actually over. This clearly relates to the equity speculation business.
In my view, the current environment is a time to be reaping and taking some money off the table. The stock market and some important commodities have come a long way in price over a very short period of time. Investment risk is high for considering new positions.
Buying low and selling high is the one investment strategy that tends to offer the greatest returns. The catch is that this strategy usually takes a longer period of time to unfold and, like any opportunity for investment, it might not pay off at all. I am extremely cautious about the current state of the equity market and am highly reluctant to be a buyer at this time. It’s been a wacky year for investors and capital markets. No one really has a defined sense as to where we’re headed. I do know that investment risk is high and attractive new investment opportunities are few and far between. The market may be going up further, but so is the risk associated with it .