Be Wary of Obvious Decisions

Article Excerpt

Sometimes the costliest investment decisions you ever make will seem perfectly reasonable when you make them. Usually these decisions cost you money because you made them without gathering all the facts you needed. To make sound investment decisions, you need a solid foundation of facts about particular investments, and about investing generally. For instance, an acquaintance told me in fall 2004 that he had recently changed brokers and had followed his new broker’s recommendation to sell a mutual fund he owned that invests strictly in resource stocks. His rationale was that the fund had been his weakest performer during the five years when he held it. “Logically,” he said, “if it hasn’t paid off in five years, it probably never will.” That’s a misconception, of course, particularly in respect to resource stocks. These stocks can go through long periods of weak performance, then soar for several years. In the past few years, in fact, resources have been the market’s strongest group. You might…

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