The other day I wrote a post called Do People Even Have A Clue When It Comes To Investing? in which I commented about an article I read on MSN Money Central.  The article, and my post dealt with the fact that people are panicking and taking every piece of news at face value rather than taking the time to dig a little deeper in order  to find their own guidance.  This post is just an extension of the problem I have with people who follow the crowd or who throw darts when it comes to investing in stocks.

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First I have one simple question to ask: Why do you own the stocks you do?  Take some time to think about the answer for a minute or two.  It’s not the simplest question to answer is it?  Maybe it’s difficult because you don’t even know why your portfolio contains what it does.  That is, at least in my humble opinion, the biggest problem among those who invest in stock.  A great majority hear something on CNBC, Bloomberg, or some other media outlet, or from a family member or colleague and invest in that company simply based on a recommendation.  In a time when people are choosing to be more frugal and efficient with their money why would anyone want to throw money around in a brokerage account and more specifically in a retirement vehicle?

There is a school of thought among some advisors that investors should keep a journal and jot down a few notes about their feelings and thoughts involved in every trade, whether buying or selling.  This is something that I absolutely agree with and recommend to people with whom I come in contact.  The point of this exercise is to actually think about each trade and record the reasons behind each transaction.  This way, when it comes time for your periodic review of your portfolio, you will have a better understanding of your allocation and why you possess each security.  In addition, it will give you some insight into your investor profile as well as your level of risk tolerance which can be of great assistance especially if you decide to bring in an advisor at any point in the future.

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Keeping a journal and actually spelling out your rationale for every trade will help you in another vital manner.  In times of rough periods such as this, when certain companies see no significant change in their business strategy or performance, yet still suffer a loss in share price, you will be reminded of exactly why you purchased or sold it off  it in the first place.  You will be reminded that if you bought the stock for it’s strong balance sheet or high dividend yield, or strong cash positioning, a sell-off or a little bad news won’t affect you as much.  On the other hand, if you sold a particular stock for any particular reason, and the situation is still the same, you will have the written reminder to avoid that company regardless of how attractive a value it may be until the circmstances change to one that you are more comfortable with. rebate singulair

By keeping track of the reasons behing your investmentment decisions, you will be in a better position to withstand unexpected changes in market attitude.  You will also be able to dismiss most of he information and rumors that are tossed around if it has no impact on any of the reasons for either acquiring or disposing of any particular stock.  This approach to investing also has a more sublte result: it will help you curb your emotions when choosing to invest by making you take a more analytical and thoughtful approach and assist you in becoming a more wise investor.

This entry was posted on Friday, March 13th, 2009 at 6:00 am and is filed under general. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.