Savvy Investors Avoid “Herd Mentality” of Investing by Default

Savvy Investors Avoid “Herd Mentality” of Investing by Default

Savvy Investors Avoid “Herd Mentality” of Investing by Default


Savvy investors avoid the “Herd Mentality” of mutual and/or ETFs (exchange-traded funds), which are investments by default for most Americans.

It is your money and therefore your responsibility, so think outside the box, do your homework and make specific stock selections if you want to personally drive your investment success.

The investment programs to which most Americans subscribe are mutual and/or ETFs (exchange-traded funds), usually guided by financial counselors for fees.

They are then investments by default.

We are all keenly aware that interest rates at all-time lows, money market accounts, bank deposits and CDs are for the most part profitless.

Over the last 30+ years I have been selecting individual stocks and commodities, assessing the uncertainties and making plays, and over the last 10 years I have been writing about it in this column. I believe in doing my own work.

Except for some, most of the investment money is steered into funds, mostly the index variety, where the principal activity of those doing the steering/picking is collecting a percentage of the assets in fees.

There is little thought given in the industry as to what mixture of funds is suitable for a particular investor.

The overriding theory is that historically the market rises meaning, “a rising tide will lift all boats”.

Then as the “tide rises”, the fees automatically extracted by counselors and the funds themselves “eat” a good portion of the tide’s bounty. And, much of the asset appreciation of the funds is not passed on to the investor.

And we hear the pundits declare, “Don’t worry about the short term. Long term appreciation will pay off, so just ride it out.”

So, if corporate securities are the selected form of investment, there is a different approach. And that approach is do your own work and pick your own stocks

Fifty odd years ago I asked Warren Buffett to tell me everything he knew about stocks, he declared, “Paul, do your own work, pick something you like, buy it, if it gets cut in half the next day, buy more, or sell it and move on.”

When I look at a company to invest in (not speculate in) it is in healthy industry with a history of stable or increasing earnings, a generous portion regularly passed on as dividends, such stocks are core positions and I refer to them as Aristocrat Stocks.

The preferred companies have reasonably low P/E Ratios.

And the portfolio is reviewed semi-annually to keep the criteria vital, the laggards are disposed and new issues added as appropriate.

That system works as both dividend income and asset value increased handsomely over time. Just look at Berkshire Hathaway’s performance over that frame (NYSE:BRK.A, NYSE:BRK.B)

As I see it specific stock choice is still the best approach, Ferrari NV (NYSE:RACE) is a recent example.

For the past 50 years my investment advice has come my work. And I have never doubted that I have my best interests at heart.

By the way, Warren Buffett asked me to tell him all I knew about Ferrari’s, that took over 2 hours.

Back then a pre-owned Ferrari was for the precious few aficionados, today they are billionaire’s trophies, the most expensive cars in the world.

The one I was driving then (1969) I bought for $7,000.00, recently one of the very few like it sold for nearly $20,000,000. Steve McQueen had one just like mine. (his is pictured above)

I like classic and vintage Ferrari cars and Ferrari NV stock.

HeffX-LTN Analysis for RACE: Overall Short Intermediate Long
Bullish (0.39) Neutral (0.14) Bullish (0.48) Very Bullish (0.54)
HeffX-LTN Analysis for BRK.A: Overall Short Intermediate Long
Bearish (-0.36) Bearish (-0.28) Bearish (-0.35) Bearish (-0.44)
HeffX-LTN Analysis for BRK.B: Overall Short Intermediate Long
Neutral (-0.17) Neutral (-0.24) Neutral (-0.17) Neutral (-0.11)

Have a Happy Easter.


The following two tabs change content below.

Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

You must be logged in to post comments :