Broker Check

What Have We Learned from “hot stock”? – by Cynthia Fick, Founder and President of Financial Life Pl

September 04, 2015
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It’s common knowledge among professional investors that once everyone’s talking about a “hot stock” (e.g. Apple) it’s typically the kiss of death. By the time a stock is the talk of the town, smart money has already pulled out. There may be signs of an overall market strengthening, but it’s not time to jump back in with a gambler mentality, regardless of the enticements. Volatility is still the name of the game.

What You Should Know:

  • Any number of risks in the domestic and global financial landscape could still derail market gains.
  • Stakes continue to be high, especially for retirees.
  • Historically, high earnings growth and a rapid rise in share price, precede a company slowdown (e.g., Microsoft, General Electric).
  • IPOs are tempting, but historically underperform in their first five years.

What You Should Do:

  • Consider an index annuity instead of getting back into or increasing your equity holdings. You can protect your savings and still realize some market gains.
  • If emotions led you to pull out of the market, re-assess your risk tolerance and use the results to guide your next steps.
  • If you decide to start investing, make sure you maintain enough cash or cash equivalents to cover your needs.

My best advice: Keep emotions in check and work with your financial advisor using guidelines that inform sound investing. Fundamental analyses of stock grades and market direction, plus technical analyses of patterns, price and volume trends, and moving averages are better guides than greed or fear.