Be careful about any "hot" investment idea that is in the media at a particular moment: dot-com stocks, gold, property, mortgage investments, "10 mutual funds you must own now."A truism in the investment business is but low and sell high. Unfortunately, it is a strategy investors do not often follow. We are hardwired to be bad investors because it is our instinct to run toward the perceived good and run away from the perceived bad. The problem is the perceived good usually is high stock values that are getting attention in the media - which we should be fleeing.
By the time values are high it is too late to be thinking about that stock for your portfolio. The investment gets all the media hype because its price has run up enough to demand attention. It impressive performance is because of the professionals and early birds who bought when it was a bargain.
The perceived bad - stock with a low value - is actually what we should be toward, not away from. But the truth is buying low is where the opportunity is and when done right offers less risk. You are buying a stock that is "on sale" so the price may not go down much more and offers plenty of upside potential.
Remember the great majority of investors (and their advisors) often are the last to hear about an investment opportunity.
The media is in it for the sizzle not the value.
Extracted from Shane Ostrom, Military Officer magazine
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