Take a broad view

Article Excerpt

When making investment decisions, it pays to take a wide range of relevant facts — positive and negative — into account. Unfortunately, it’s all too easy to zero in on a scrap of information that reinforces your wildest trading impulses or deepest economic fears. It’s particularly risky if the scrap of information appears in a headline, especially on the front page. If enough investors buy or sell in response to a shared impulse or fear, it can have a big but temporary impact on the stock. Here’s an example. On Monday, March 29, headlines announced that President Obama had fired the CEO of General Motors. Many investors took this news badly, and rushed to sell stocks as soon as trading began. The Dow Jones Index opened at 7,630, down 140 points from Friday. The index kept on dropping and hit a low of 7,450 by 3 PM. At that point, the Dow began to rise. By Wednesday afternoon, the index had regained all…

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