We continue to have strong momentum-buying in a number of bigger-cap technology stocks such as Google (GOOG), Baidu (BIDU) and Apple (AAPL), which is offsetting weakness in a few disappointments like Symantec (SYMC) and Cisco (CSCO). One thing many market players have difficulty with is chasing strong momentum in an extended market.
It may seem unreasonable and overly emotional, but quite often, profits come from embracing what seems to be irrational. If we sit and wait for the market to act the way we think it should, we are very likely to be disappointed.
Not only can irrational action persist in the market for longer than we think it should, but there actually is a tendency for markets to always exceed what seem like reasonable levels to us. Most of us simply don't understand mob mentality, and that is what is at work. If we try to be objective and coldly measure what the market is going to do, we are going to miss the emotions that are the real driving force.
The trap that we tend to fall into is that we often are inclined to call the emotions that are driving things irrational simply because we aren't sharing them. We shake our heads over the folks who are excited instead of appreciating the fact that they may be representative of the broader market and are not just some lunatic fringe.
Investors have a much greater tendency to be emotional rather than scientific and calculating, and our failure to appreciate that is why markets almost always move more than we think they will.
P.S. Will you be there when Cramer makes his next move?
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Rev Shark Blog Measuring the Market's Great Expectations 1/16/2007 8:08 AM EST No matter the overall tone of the market, there are always ways to play individual stocks.
Rev Shark Blog Bulls Have High Hopes on Earnings 1/12/2007 2:59 PM EST Sure, profit reports might be positive, but much of the good news already is priced in.
James "Rev Shark" DePorre is the founder and CEO of Shark Asset Management, an SEC-registered investment advisory firm. He also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children.Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here to send him an email.
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