Word: sectoral
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...books about the future. Violence in the banlieues around Paris and other major cities is now a regular and ugly occurrence. There are a lot of things that are right with France, too. Its worldwide reputation as a great place to live and visit remains intact, and its private sector has managed to adapt to a changing world, at times brilliantly. That's the main reason why the stock market is at an all-time high and the economy has picked up. So with six months to go before a presidential election, you might have thought it was easy...
...does the average investor perform so much worse than the average fund? The answer is timing--bad timing. People have a knack for stampeding into a sector as its performance peaks, only to suffer the impending decline while missing the rally. So the average investor's money, often earmarked for important future needs like education and retirement, grows at a slower rate than it would with a simple buy-and-hold strategy...
...second concept is attention. Most people pay little mind to the details of why the stock market rose or fell. But the media capture our attention by highlighting strong sectors--real estate and energy are recent illustrations. More often than not, once a sizzling sector comes to the attention of an individual investor, the opportunity is gone...
...think the investment industry is there to protect you, think again. Many firms see a hot sector as an opportunity to gather assets. Before the tech-stock peak in 2000, the industry marketed nearly 500 technology, telecom and Internet funds. It's the same story now, only the actors have changed. In October 2004, 180 hedge funds were dedicated to energy and commodity investments. Today there...
Moving money from sector to sector to capture performance is like frequently changing lanes on a crowded highway: you rarely get where you're going faster, and you risk a wreck. Recognize that strong recent performance often signals an investment opportunity that has passed. It's best to heed Alexander Pope's admonishment: "Fools rush in where angels fear to tread...