Trick or Trend

Don’t let trends make you move too fast, buy too much, or fail to ask the right questions. That’s easy to write, of course, but in the frenzy that often accompanies trends, it can be difficult to put these instructions into practice. Therefore, here is some more practical advice:

1. CREATE A TREND TIMELINE

Do some online research, finding when the trend was first reported on in periodicals or elsewhere (Web sites, broadcast outlets, newsletters). Was the most recent mention within the past week? Within the past month? Within the past year? Ideally, you’ll invest based on the trend before it even hits the media. Realistically, you might be okay if you do so within days or weeks of its being reported. Any later, though, and you’re in danger of investing as the trend‘s benefits quickly diminish.

2. PREDICT WHEN THE BUBBLE WILL BURST

Clearly, this is an extremely difficult prediction to make. However, history does tend to repeat itself in the financial markets and the more knowledge you can gain, the better prepared you will be. What you can do is chart earlier trends and determine how long they lasted and how suddenly they went from hot trend to yesterday’s news. Focus on how trends unfolded in Biotech, Telecom, Utilities, and Semiconductors. A little research will reveal that the great investment opportunities existed primarily when the trend emerged and that the end was sudden and caught most people by surprise.

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