Sunday, December 26, 2010

Haste Makes Waste in Investing

 Patchy Knowledge of the Markets Can Backfire

A smattering of knowledge can be more harmful than helpful for the investor. An example is a disjointed grasp of cause and effect which provokes moves that are not only feckless but detrimental. In this regard, at least, the field of investing is no different from any other domain.

In many cases, scrappy information paints a false picture of the financial arena as well as the real economy. The faulty impression sets the stage for a universal form of blunder: an overreaction by the antsy investor. A case in point is a punter who flees a foreign market in the wake of a local flap; yet a bombshell which looks menacing to the players living abroad could well be business as usual for the locals.

A second type of gaffe is a misreading of a given event due to an incomplete knowledge of the larger context. For instance, a gripping event which looks like the sign of a turning point might just be another symptom of a chronic condition.

A third form of bungling is a blind reliance on a rough guideline. As an example, the stock market is widely regarded as a harbinger of the economy at large. On the other hand, the bourse has a habit of breaking down for reasons that have nothing to do with the innate condition of the financial forum or the larger economy.

The three types of mistakes may crop up separately or jointly. In the case study presented here, the trio of goofs rocked the stock market and the local currency in Thailand.

More on Haste Makes Waste in Investing.

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