Welcome back to our ongoing discussion of some of the most common mistakes that investors tend to make when Stock Market Investing. If you missed it, be sure to take a look at stock market investing mistakes Part 4.
These aren’t the usual obvious errors that you might have heard of, but they still hold disastrous consequences, so it pays to educate yourself about them and to diligently avoid them.
Predicting Spikes And Lulls
There’s hardly an industry out there that doesn’t fluctuate at least some with the seasons. Everyone knows that retailers, for instance, tend to see a major spike around the Christmas season, and then a lull immediately following that, in the spring.
The same can be said of many other businesses, and the better you’re able to predict when these kinds of lulls and spikes will happen, the better your investment decisions will end up being.
Also note that the decisions made by the federal reserve in regards to setting interest rates tends to directly coincide with the fluctuating seasonal movements of the country’s industries. So, that’s even more incentive to keep this in mind when you’re looking for a company to invest in.
Research 5 Year Data
The best thing you can do to educate yourself about an industry or company’s typical schedule of spikes and lulls is to look at a monthly five year record of the company’s performance. You should see some semblance of a pattern emerging from the shifting data, and from that it ought to be quite easy to extrapolate the knowledge of when it would be best to invest in this company (if at all).
This concept is incredibly important to making wise investment decisions, because the movements of the market and the federal reserve will nearly always outshine any other consideration that can be made about an investment.
In other words, even if everything else looks great, and a company is still being traded at a high volume with a lot of excitement, you can’t count on it unless the seasonal history indicates that you can.
See you next week for part 6 of Stock Market Investing mistakes.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2009
{ 3 comments… read them below or add one }
I used to have some software that did this type of analysis – and more. Looking back over past performance is so important – for what is described here and the overall performance.
Hi Sean,
I think this is easier to see with the industry that you’re most familiar with. This is another good reason to choose stocks around the areas that you’re most knowledgeable.
Thanks for reminding me to keep a watch on what the Federal Reserve is doing.
There is a lot involved in stock market trading. A lot of education is needed in learning to see and knowing what to look for.
The stock market can be a very unforgiving place for those that want to rush in and speculate. But for those who take their time and get a solid education first it can be fun and exciting.