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The What, When and How Much of Investing? (Part 3 of 3)
By Peter S. Iuvara

Well, Part 3 of The What, When and How Much of Investing? is finally here. Although this series of article has come to an end, another set of "ultra-informative" article will sure head your way either from Bruce or myself.

I like to use Investor Sentiment as a guide to "The how much of investing". Sentiment, by a broad definition encompasses what investors are thinking. It is their attitude, perception and mentality towards individual stocks, sectors, indices or the even the markets as a whole. In a word, it is the psychology of the stock market. Sentiment will answer the important question of intensity or asset allocation within your portfolio? For instance, when sentiment is positive, you would like to allocate more capital towards those securities. Of course, you typically want to avoid stocks / sectors with negative sentiment, such as sectors that may have recently been downgraded, unless you are short on the position.

Investor Sentiment is an important measure of which stocks and / or sectors are currently in favor, and which sectors you may want to avoid. It helps to determine momentum and establish added support when the fundamentals and technicals both look good. It is also important to realize that positive sentiment will almost always drive the market higher, while negative sentiment will often push it down. A great example of this is a bull market. A bull market by definition is a "prolonged" period of time in which stocks move higher usually 20% or more. But what causes the 20% upside move? Fundamentals (oversold conditions)…. maybe, technicals (trading at or around support levels)…. maybe, Sentiment …. probably! The truth is, a combination of all three may exist, but sentiment is essential in determining bullishness. Investors must first want to invest, this will raise prices, which in turn will ultimately create the bull market.

Investor Sentiment is the final important step in, The What, When and How Much of Investing! Congratulations to you if you have read all three installments of this article. I am confident that this is a great step in helping you reach your financial goals. Make Profitable Investment Decisions!

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