Why investors shouldn’t ignore stock market sentiment


Stock Market SentimentBuy when the blood runs in the streets. ~Nathan Rothschild

If wealth creation is your aim then investing at least some of your money in the stock market can be a great way to achieve above average returns, if you know what you’re doing.

The problem for most people is that they don’t really know where to start, so they avoid the stock market altogether. And that’s a shame really.

However if the stock market does have some appeal to you and you’d genuinely like to know where to start then my advice would be to take a close look at successful investors, the professionals, and see how they approach the process.

Look at what they do because if it’s worked for them then it’ll probably work for you.

The legendary investor Warren Buffett once observed that markets are driven by fear and greed. And greed always trumps fear.

When stock markets start moving quickly on an upward trajectory, amateur investors are tempted to join the party, particularly when the return on cash deposits is low.

The problem for amateur investors is that by the time they notice what’s happening in the market, all the real bargains have gone. So they tend to join the party at the wrong time and then over-pay for the stocks they buy.

Stock Market SentimentMy underlying point here is that market movements tend to be exaggerated, in both directions.

The collective herd behaviour of investors tends to cause the market to overshoot fair value when it’s rising and then fall way below fair value when it’s in decline.

Stock prices are driven by the economics of supply and demand.

When lots of money is chasing a relatively few stocks then the price of those stocks keeps going up. Until professional investors realise that the stocks have become overpriced, relative to the underlying fundamentals of the businesses involved.

At this point fleet-footed professionals sell and bank the profits.

Amateurs tend to be slow to notice a downturn but when they do, they lose their nerve and sell. Usually that means they sell at a loss but also, as the index has by now hit an exaggerated low, they actually sell for less than the underlying value of the asset. Thus creating more bargains for professional investors.

So what signs are professionals looking for to allow them to bag a few bargains?

The answer to that is simple. Successful investors know that the best time to buy is when everyone else is heading for the hills. When there’s a panic going on.

That’s when you’ll find the real bargains.

The market is always volatile of course but had you invested in 2008 for instance, when market conditions were as dire as they get, and you held your nerve, then you’d be sitting on some very good returns over the past 10 years.

And what sign tells successful investors it’s time to sell?

Well they know that the best time to sell is when the ordinary man and woman in the street are starting to talk about the stock market and the shares they’ve just bought.

When everyone has bought into the market, then professionals know that demand must start drying up and without demand prices can’t keep going in an upward direction. So they know it’s time to bank some profits.

Personally, I view the market through a contrarian lens and so far that approach has served me well.

I look for value but it gets harder to find the more market sentiment lifts prices to levels which defy sound investment logic.

Again to reflect on Warren Buffett’s investing philosophy; he suggests you should be greedy when people are fearful and fearful when people are greedy.

Stock Market SentimentThe key to successful investment is that you must never lose sight of stock market sentiment and signs for when the market might turn, either up or down.

And never listen to anyone who tells you that it’s different this time. It’s never different.

Markets fundamentals never change, not in my experience certainly.

So that’s what I think but what’s your opinion?

Please share your thoughts and experiences with me. I’d love to hear from you dear reader.

However if you’d like to know more about legendary investor Warren Buffett and his approach to investing then you’ll find plenty of books on Amazon if you CLICK HERE.

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Why anxiety about spending money is pointless

Anxiety about spending moneyIf you can afford to go first class and you don’t, your heirs will. ~Mike Spinelli

I am a firm believer in the need to manage money carefully and I have made that a constant theme in this blog. You really must look after your money.

If your aim is to create wealth for yourself, then you have to manage your money with great care, otherwise it will disappear faster than you can say “stone broke’.

However as with everything in life balance is very important too.

If you can’t enjoy a little of your money then it all becomes a bit pointless, I’m sure you’ll agree.

Putting off enjoying your money until old age is a bit like putting off sex until old age. Why would you?

We’re all going to die one day and you can’t take anything with you when you go. So if you don’t enjoy some of your wealth now then your heirs will; of that you can be sure.

My message today therefore is create wealth for yourself but don’t stress when you’re tempted to do something nice for yourself. It’s perfectly reasonable to reward yourself occasionally.

Why?

Why not?

You’re worth a little enjoyment occasionally, surely? Ultimately, anxiety about spending money is pointless.

It’s never a good idea to waste money but it’s a good idea to ensure you enjoy the fruits of you labour now and then too.

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The real cost of being a fashion victim

Fashion VictimYoung people need to develop a sense of being responsible with money. ~Joseph Crosby

Dear reader, are you a slave to fashion? If you are, you’re not unusual.

Young people in particular are often driven by fashion, as indeed are many not quite so young people.

People feel a need to fit in with their peer group, so they feel the need to dress like their peer group.

However the fashion industry exists ultimately to drive the sales of new clothes.

Fashion is an essential part of the clothing industry. It encourages people to buy new clothes constantly, despite the fact that they may have plenty of very good and serviceable clothes in their wardrobe already.

Fashion says, “Oh, you can’t wear that anymore, it’s so last year.”

And so people are encouraged to spend their money on things they don’t really need and could easily live without.

Next time you’re thinking of buying the latest fashion item, ask yourself this question, “Should I part with my money and make someone else rich or should I start being more responsible with my money and then I could start building wealth and financial independence for myself.”

If you line the pockets of other people by spending your money on things you don’t need then you’ll always be poor. That is a fact dear reader.

So start taking more care of your money. If you don’t waste it then you can start building your own wealth and one day you could be financially independent.

People looking back at photographs taken during their youth usually cringe at the fashions they wore. I know I do. How about you?

A nod to fashion is fine of course but being driven by fashion is a serious mistake and one that will prevent you from ever becoming financially independent.

Dear young reader, your parents were fashionable once. Do you look back at the fashions your parents wore and think to yourself, “Hey, don’t they look cool?” I rest my case.

Don’t be a fashion victim.

You’ll cringe when you look back at the clothes you wore but you’ll never, ever cringe when you look at a healthy bank balance. Trust me.

Calculate the cost of your improvidence:

We’re all guilty of buying clothes we don’t wear or wear very little.

So here’s a little task for you reader.

Take an inventory of your wardrobe and identify all those items you’ve never worn or worn very little. Then calculate the original cost of these items. Then ask yourself, “Was this money well spent?”

Share your conclusions with me in the comments section. I’d love to hear from you.

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Here’s how to make extra money

How to make extra moneyWhere there’s muck there’s brass. ~English Proverb

If you’re short of money and you could use a little extra, what’s the best and quickest way to generate some cash?

How about making money from your old junk? All that clutter filling every available space in your home?

If you’re anything like me dear reader you’ll have accumulated plenty of junk and clutter over the years.

Old toys, bric-a-brac, old vinyl records, CDs and DVDs and so on. They can all be traded for money. Even old clothes can be traded. And if you have anything that offers some antique value then that’s even better.

A classic way to sell your junk and clutter is via a boot sale or yard sale of course but nowadays you can also sell using eBay, Craig’s List and similar websites. The internet makes it even easier to trade your old stuff for cash.

Believe it or not, even old, broken electronic gadgets can be traded to be used by people seeking spare parts which would otherwise be unavailable.

Old cars similarly can be mined for spares and therefore offer a means to make money too.

Then there’s scrap metal; there are plenty of people who make a decent living trading scrap metal.

Have you got a pile of old bricks at the back of your yard or garden?

You have? Then don’t just throw them away as someone might need bricks of that type and they could be prepared to pay you some cash for them.

There has always been money in old junk and clutter for those with a keen eye for hidden value. And there’s always someone, somewhere who might just need what you have but don’t want anymore.

Even dirt offers a money making opportunity. Many people have made fortunes by processing rubbish or waste materials.

Even if it can’t be sold it can be cleaned up for other people, hence there’s always money to be made somewhere.

For instance, houses where someone has sadly passed away will need clearing before they can be sold. Families are often willing to pay someone to clear it for them.

And don’t forget, trading in old junk can be turned into a profitable business.

For instance websites like MusicMagpie make good money trading old DVDs and CDs.

Then there are people who buy old books cheaply and sell them for a profit on Amazon.

And there are people with an eye for hidden value who will go round boot sales or yard sales looking for valuable items being sold cheaply. They will then buy them and resell them on eBay or at auction for profit.

For instance I saw a lady a few months ago who bought a vase for £1 at a boot sale and it was re-sold at auction for £800. Now that’s a decent profit.

As I said earlier, it’s never been easier to sell old junk and clutter on websites like eBay so there’s no excuse for not being able to make some extra cash.

Enterprising people will always find a way to make money and you can too.

Why not you? Why not now? Go for it!

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Why you must earn before you spend

Why you must earn before you spendEarn it before you spend it. ~Author Unknown

If you want to build wealth then developing good money habits is essential dear reader. And if you’re a parent then it’s a good idea to encourage your children to develop good money habits too.

In fact, if you can only give your children one piece of financial advice then the best piece of advice is included in the quote above. Earn before you spend.

Far too many people today do the exact opposite.

People spend money they don’t have to impress people they probably don’t even like. The result is a burden of debt from which it is very hard to escape.

Occasionally we all want to buy those big ticket items. A nice television; nice furniture; a nice personal computer, tablet or smartphone; et cetera. Naturally, these are things we all want. The question is, does it make sense to incur debt in order to own these things?

My advice is to save the money first and then buy that thing you really want.

Financing arrangements are there to make other people rich. And by using finance that almost always means you’ll pay a lot more for items acquired using credit.

The ‘buy now, pay later’ deal usually comes with a high interest rate added. So inevitably if you go down this road then you’ll end up paying a lot more than you would otherwise.

Yes, you’ll get the item quicker, that’s true. However you’ll enrich someone else at your own expense. In what way does that make sense?

Now be honest with yourself; there really are very few things in life we couldn’t live without if we had to, surely?

Look after your own interests rather than lining the pockets of other people whilst impoverishing yourself and your family in the process. That is today’s message.

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Why you should respect your money

Respect your moneyRiches have wings. ~English Proverb

If you live in the UK, then in the last couple of days you might have read about the lucky couple who scooped £115 Million on the EuroMillions lottery. If you’re like me then you probably thought, “Wow, how lucky they are.”

In theory they should never need to work again. Although really they’ve just swapped one set of problems for another.

Winning money is one thing; keeping hold of it is quite another. There are plenty of examples of people who’ve won large sums of money through lotteries, or other gambling, only to lose it all within a few years.

As the English proverb above suggests, money can disappear easily if you’re not careful with it.

You have to look after your money; you have to manage it carefully.

Money can be like a bird with wings; it can fly away if you are not careful.

Too many people spend their money far too freely on things they really don’t need and things they could live without. And plenty of professionals will be offering them help, only then to help themselves, if you know what I mean?

Today’s message is that you should respect your money and look after it. Otherwise you won’t have it very long.

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The importance of saving for a rainy day

Saving for a rainy dayWhen I bought my boat, a Fairline Squadron 55, it cost me about £2,000 in fuel every time I filled it up. I don’t have it anymore. ~Gavin Henson

The former, Welsh rugby star Gavin Henson provided us all with a useful underlying message when he made this comment originally quoted in the British newspaper The Daily Express, albeit a few years ago now.

In making this comment he was talking about the most money he’d blown in one go. I used the word blown rather than spent to emphasise the questionable nature of this expenditure.

When you’re enjoying a little success in your career, and the financial dividend it brings, then it’s easy to think it will all last forever. So you start spending your money on expensive luxuries and enjoying the finer things in life.

That’s fair enough, to a degree, because there’s no point in being successful if you can’t enjoy some of the fruits of your success. That’s what it’s all about, surely?

The problem is that when the big money starts rolling in it can disappear just as quickly as you get it, if you’re not careful. Then, if you can’t sustain your success, before you know it you have nothing at all.

So if you’re lucky enough to earn big money then make sure that you put some of it away for a rainy day. It will rain one day, it always does.

Never underestimate the importance of saving for a rainy day. You need to make sure that you can weather the storm when it comes. It really is a good idea to be prepared.

Enjoy your success of course but never be foolish with money. It’s as important to life as the air we breathe. Make sure you can cope with a change of season.

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Lifestyle or people? Which is more important?

Lifestyle or peopleMoney, past a certain point, cannot buy you anything worth having. ~Giles Coren

I wrote a post recently about the importance of money versus life and I received some interesting feedback from readers. Some agreed with my underlying point that your life matters more than obsessing about money.

However others thought that their quality of life was in direct proportion to the money they’ve got. Essentially money equals lifestyle and so ultimately they thought it mattered more.

So I think it’s worth reflecting on this issue again.

Yes, having money is nice insofar as you can live in a nice house, drive a nice car, wear fine clothes and eat in the best restaurants. All of that is wonderful no doubt.

However money can’t buy you love and it can’t buy you the wag of a dog’s tail.

Money simply cannot buy genuine affection from others, whether that’s your partner, your children, your family, your friends or your pets.

If you could only have either the finest things money can buy or strong, well-balanced relationships with the people who matter most to you, which one would you really choose?

I don’t know about you but I think people matter most. If push comes to shove I can live with very little money but I couldn’t get by without my loved ones.

All of the most memorable times in my life have had other people at the core.

It is people who’ve made the difference to me. It’s people who’ve made me smile. It’s people who’ve been there for me when life’s been a challenge. We all need people more than we need things, surely?

Having money is very nice of course, but having people in my life has been much nicer.

Money is like oxygen, we can’t live without it. That’s true.

We must ensure that we’ve got some money, but we shouldn’t pursue money at the expense of our loved ones.

I would rather be poor than lose those people who matter most to me.

Then again, that’s just my point of view but what do you think?

Would you agree with me? Perhaps for you lifestyle matters more? Let us know via the comments below.

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How to make money from investing in stocks and shares

How to make money from investing in stocks and sharesOnly buy something that you’d be perfectly happy to hold if the market shut down for 10 years. ~Warren Buffett

Arguably, Warren Buffett is one of the greatest investors of all time. Certainly he has delivered an above average return to investors in his company Berkshire Hathaway consistently over many, many years.

And when people are successful we should listen to them. If their approach has been successful for them, it can be successful for us too. So it’s a good idea to listen and learn.

Warren Buffett’s investment philosophy is essentially quite simple.

If you’re buying stocks and shares then the ideal investment is a company with a range of good quality products which everyone needs; with strong cash-flow and little or no debt; broad international exposure; and which pays solid, sustainable dividends.

Buy the asset at fair value and you will have an income stream you can rely on regardless of any short or medium-term market volatility.

Choose the right stock and you should enjoy some capital appreciation over the long term as well.

Too many people are speculators rather than investors. They hope to time the market to gain a quick buck. However that’s hugely difficult and most amateurs will lose money with that approach, unless they are very, very lucky.

Whereas invest in good companies at fair value and over time you’ll have an excellent chance to make very good return.

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Which is most precious your money or your life?

Which is most precious your money or your lifeThere are no pockets in a shroud, so I love to spend and be generous when I can. ~Laura Tenison

In life there are two resources which require careful management. One is our time; the other is our money.

With respect to money, we must take care of it, protect it, manage it carefully and we shouldn’t waste it.

Ideally we should be building wealth and acquiring assets that will generate an income for us.

In that way we create a private income and then what we do with our life depends only on what we want to do with our life. And for me that’s important.

All that said, it’s important not to become obsessed with money.

The quote above from Laura Tenison reminds us that we cannot take our wealth with us when we die.

Clearly Ms Tenison likes to share her good fortune with others. She’s right I think but, as always, it’s about striking a balance.

In creating the maternity clothes retailer JoJo Maman Bebe, Laura Tenison is clearly a smart lady, so my guess is that she will always strike the right balance. So good luck to her.

If success is your goal then I hope the year ahead proves to be very successful for you Dear Reader. It can be, so keep going until you get to where you want to be. However make sure you get the balance right too.

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If you found this article useful then please share it on social media with your friends. When you share, everyone wins. So please share now. If you do, I will be ever so grateful. Thank you.

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