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!