In a recent article in The Wall Street Journal, titled, “The Surging Market: Too Late to Buy?” Brett Arends writes about the current market trend and how this is affecting the behavior of investors. The author invites investors and potential investors to think about how they think about the market.
As the stock market surges to new highs, those who missed a lot of the rise have been rushing to jump on board. Most people find it very hard to resist a crowd and, in today’s market, it can seem like everybody is making easy money except you.
What’s the best strategy to get in on this action? Should you even try to get in on the action? Here are a couple of the key steps that Brett suggests the average investor should follow:
1. Don’t get stampeded
“Be fearful when others are greedy, and greedy when others are fearful,” advises Warren Buffett, the most successful investor in history. Remember, the market is never so dangerous as when everyone else is optimistic. People often engage in a circular argument that stocks must be a good investment because they have already risen a long way. The reality could be quite different, Fund firm GMO, which correctly predicted the market drops in 2007 and 2009, says that the outlook for stocks is the worst since 2007.
2. Have a plan
The stock market is inherently volatile. Even when it has generated superior returns it has done so unevenly. Many investors plunge into the market after a boom, only to sell again in panic when prices fall. Historically, the risks of investing in the market decline the longer you stay invested in the market. Invest in stocks only with money you don’t expect to need for four or five years.
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