Sunday, January 16, 2011

Investing Following the Crowd Leads to Upticks and Sharp Downticks

Tags: Stock Bond Emerging Markets Oil Crowd Often Wrong Global Warming Effects Food

Investors can take advantage of crowd behavior as long as we don’t get too greedy. For example the Zebra Fund is now being recommended after sharp upticks. It tries to prevent too much funds inflow by closing it a number of times so it will not get so much cash that they have to buy stocks that have already gone up sharply.

Rebalancing my holdings every quarter which my advisor does keeps me from getting too greedy. My assumption is that I really cannot predict the market so I just diversify a lot all over the world and avoiding direct investments in China and Russia directly.

The crowd is now selling bond mutual funds quite sharply and buying stocks, especially oil related ones and likely Emerging market funds, bonds, and inflation protected funds. Be careful when you follow the crowd.

Not well publicized here is that food inflation in the third world is quite sharp due to an increasing frequency of droughts and floods due to warmer water temperatures and moist air causing shifts in wind patterns with greater frequency. Even here we can expect food inflation to occur eventually due to droughts and floods in California, Florida, and the Midwest.

I recommend subscribing to Bloomberg Business Week which will help you keep up with important financial news instead of watching the daily stock market reports on television. Journalists can write about what is happening, but like all of us, cannot predict the future.

Jim Kawakami, Jan 16, 2011,

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