Stock Investment Advice: Don't Let Fear Control You

Financial news and articles giving stock investment advice can be fleeting and contradictory. That's why it's best to invest with solid principles and have an investment thesis that involves a solid approach to the art and science of investing. Because the nature of investing is cyclical, you should be wary of fast-talking news anchors and financial writers who pretend to be ultimate gurus. They usually argue on unsubstantial issues or global issues that are unsubstantiated in their evidence to effect the stock or the stock's industry.

For sound investment planning, one should nearly completely disregard speculative news and spur-of-the-moment stock investment advice. It's best to have an investment thesis and to stick to a plan that is guided by sound investment principles. With that said, if the advice is well-thought-out and substantial enough to overthrow your thesis or at least challenge it, then it should be seriously considered and added to your investment thesis to guide you in your decision making.

For example, say that you wished to approach the equity (stock) market by trading exchange-traded funds (ETFs) that are based on industries only. The bulk of your investment research is devoted to economic research. The allocation of funds to the ETFs you buy are weighted based on the future expectations of the industries that you invest in. Imagine that currently your top industry is consumer staples. News has come out that bashes consumer staples as part of a growing concern of bad economic growth. Yet research analysts do not see a major breakdown in the future prospects for the industry. Therefore, the current bad news, no matter how detrimental it is to the portfolio, should be disregarded.

When the investment thesis is coupled with investing rules, the scenario will change. Let's say that your top industry in the portfolio is not only taking a bath but is also performing below a threshold that warrants its under-weighting in the portfolio. In this circumstance, once the rule has been broken, one would take action to mitigate any losses by selling. Yet the future prospects for the industry may still be intact. That's why it can be conflicting to have an investment thesis and investment rules that contradict each other, making the overall performance of the portfolio hard to maintain above par.

Contrarian Investors

Those opportunists who don't have to worry about investment policies can take advantage of stock investment advice and news stories. Normally, these articles are published during a time that the stock has reached a cyclical peak or cyclical trough due to the reflexive buying or selling that occurred during the course of events. That's why there are those investors who will commit themselves to the exact opposite of what the articles are advising. This is what's known as contrarian investing.

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