Hey: got a tip?
Photo: Kevin Rosseel. Source: Morguefile
I’m often asked for investment advice. People are usually looking for something new—an overlooked equity good for a quick buck. But giving out random tips is contrary to my professional principles. Investment advice is like medical or legal advice: specific instructions should be tailored to specific situations. It may be fine for a doctor to say, “Get more exercise,” but it maybe not if the person just had a heart attack.
So I may try to duck the question by saying something generic, like: “Here’s a tip: diversify.” But that’s a little too clever. Sometimes folks just want an idea that they can apply. And traders are full of ideas. Buying and selling securities every day tends to give you lots of them—especially if you do it for a few years.
One notion that comes up repeatedly is “The trend is your friend.” When a market establishes an inclination, it’s best to go with that tendency rather than fight against it. Sail with the wind, rather than try to tack against it. But we don’t like to do this; we think they know better. And there are always reasons to question whether a trend can keep going.
But traders are like mercenaries: it’s not their job to figure out which side is right, it’s their job to win. In the same way, investors mustn’t tell the market what to do, they should look at what the market is doing, and go in the same direction.
“The trend is your friend.” Just remember, this principle is true, until it ends.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!