You’ve probably heard the old adage that all boats rise with the tide. Well this can often be true in the stock world and it’s well worth being aware of. Sometimes you may have found the best valued stock in the world..say it’s a home builder. This company runs it’s business well, does great customer support, has quality products, treats it’s shareholders right and you know everyone must love it, but the stock just keeps getting pounded down and down. This is because there is a lot of markets investing out there and when a whole sector is hurting like house building even the cream of the crop can get drug down with it.
I’m not trying to say that you can’t invest in a down market, or short in a up market, I’m just saying that generally you’ll be adding increased risk to your trade or investment. At least be aware of the situation.
I find it useful to look at ETFs related to the sector and see how they are performing. As long as they are remotely in line with my investment idea then the market should help support my investment.
This also works for technical analysis, sometimes even better than fundamental investing. It’s difficult to find good information for a market in general, but all the same TA tools work on a bucket of stocks either by looking at the index fund or creating your own bucket of stocks and charting their performance (though without good charting software this takes some effort.)
The other side of market investing is when you have an insight into certain market doing well, but you can’t figure out who the winners or losers we’ll be in the market. Emerging markets is a common situation, I personally feel alternative energy is going to do well over the next couple years, but so far I haven’t been able to hash out any good front runners. A quick google search yields many blogs on alternative energy investments and funds – which haven’t seemed to fare the recent downturn any better than anyone else. Investing in the market as a whole will diversify my choices while keeping me focused in the sector I believe to do well. Generally this reduces risk without minimizing your reward too much if you’re correct.
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stock market investment is always an unpredictable market. In the year 2008, every stock exchange as marked down turn. I think this is the right time to invest as the stocks trade low.