why is it challenging to match your investing decisions with how the stock market is performing? you will learn everything here
There is nothing more fulfilling than having your money work for you through stock market investments in order to have the life you want. However, it is not without its challenges as academicians, scholars and research students encountered diversions to their planned research programmes recently.
For investors
one of the most difficult things that they have to work on is the attempt to Always try to synchronize his/her decisions made with the performance of the stocks. This can be a rather difficult exercise for anybody especially those who have been actively investing in the shares market. I ordered to explain why it is difficult in this article and also give some idea on how to overcome this.
This paper focuses on the Volatility of the Stock Market as the cause of over investment by corporate organisations
This stock market is best know for its volatility. This reflects the fact that the value of stocks may change within a few days or weeks by a very wide margin.
Such stands can prove very unhelpful especially to the investors because they may have information overload on the market to make a right forecast. It is focusing on stakes whereby the general performance of jobs is felt on other performance areas which include the economic conditions, political issues, and performance of the firms.
Even to attempt to picture all these variables and how they may influence the market place could be quite mind-boggling not forgetting the fact that it makes it difficult to make sound investment decisions.
The Influence of Emotions
The third challenge that investors underwent through is the attack of emotions to investors as a result of the investment decisions made. It is the same way that this theory holds that when the share market is performing well it can make the investors be over confident and insecure, hence make decision based on greed.
On the other hand when in the market is down, investors may feel the heat as a result of feeling a raw nerve, this will lead to making decision out of fear. Such feelings can cause behavioral responses that may not reflect the fundamentals and any investment decision made under such circumstances will not be the true reflection of the market.
This classification simply puts a stock in either the short term or the long term investment categories without explaining why this is the case
But it must be appreciated that invest is possible in more than one form and one challenge faced by most investors is having inadequate differentiation of short term investment and long term investment.
A short term investment therefore could equally be defined as the act of purchasing securities with the view of gaining from their sales within the period that does not exceed one year, or even months. On the other hand, the long-term investment is one that is held, for stock investment for more than a period of one year or it is an investment that is made with the intention of earning and is not sold often.
To cater to the short-term fluctuations it may become difficult to arrive at rational decisions on the stock investment that one wishes to make. Nonetheless, concentrating on its long-term performance is anything but unproblematic as it demands both time and the nuance of market trends.
The Importance of Diversification
One of the successful approaches used in investment is the diversification concept that seeks to reduce risks from the fluctuating stock market.
It refers to dividing the targeted funds into several areas of the economy, types of businesses, and kinds of properties. This serves to help in the reduction of potential losses due to market fluctuations throughout the entire portfolio.
But getting the right number of diversified assets may be quite a difficult task in the sense that it entails a lot of research in different companies and different forms of investments.
Need for Well Framed Investment Plan
It is always essential for an investor to have a good investment plan and this is a more important in cases when one wants to align his portfolio’s investments in relation to performance of the stock market. A clear investment strategy always acts as a guide and elicits discipline to cause the trader to exercise emotional restraint.
Financial plan should contain your goals, your tolerance to risk, and your portfolio of investments appropriate to achieve the goals you have set. However, developing a sound investment strategy as a firm foundation may be difficult by nature, more so where the investor lacks the relevant experience.
Overcoming the Challenge
In fact, it can be quite challenging to at least attempt to synchronize your investment decisions with the market trends or, indeed, vice versa but it is not a trick. Here are some tips to help you overcome this challenge:Here are some tips, to enable you to overcome this specific challenge:
Stay Informed
One should see this as useful in order to avoid being left in the dark and know what is going on in the market and other events.
Have a Long-Term Perspective: As to its relevance, it can be stated that an emphasis should be made on the long-term tendencies in the market rather than the short-term fluctuations.
Stick to Your Plan: In essence, keep yourself far away from Emotional Intelligence when in the process of decision making as much as possible. It should be noted that while being disciplined, one should stay committed to the preferred form of investment as well.
Diversify: Diversify through coming up with strict rules on the use of your money in different regions of the marketspace or in different kinds of property.
Seek Professional Advice: Perhaps it would be pertinent to seek the services of an expert in this industry to advise on the most appropriate approach to take in formulating an effective investment plan.
In Conclusion
Therefore, it can also be argued that when making a decision to invest one has to co-ordinate or synchronise his choices and decisions with the performance of the stock market – which is easier said that done. Such cause might include inherent cyclicality that is characteristic for a given market, impulses, passion which interfere with rationality, and, of course, the necessity to develop an adequate strategy. However, this challenge can be solved by getting knowledge in the market and having long-term expectations and goals for investments, keeping strong in your beliefs and not changing your minds according to these fluctuations; diversifying the investments; apart from, these investments can be handled by a professional.