Top Investing Mistakes – Investing Against The Trend

For the next few days I’ll be posting some of the top investing mistakes investors make using the learnings from my readings, my observation, and from my own personal learnings.  At the end of the series, I’ll consolidate the articles into one giant reading for a more complete article.  In the meantime,  I’d love to hear your thoughts as well.

Investing Against The Trend

One of the biggest mistakes I’ve made that led to big losses is betting against the trend.  When I was investing before this whole crash happened, the market was trending up, and I was successful with it.  Stocks were going up, mutual funds were going up, and IPOs almost seemed invulnerable. I remember investing in Visa (V) when it first launched in March of 2008 and watching the stock sky rocket almost every day.  I felt like I would never see a red and that this was my ultimate solution to early retirement.

As ignorant and naïve as I was, I happened to be doing something right at the time without even fully understanding it – investing with the trend.  Despite the fact that I only knew how to “buy” stocks and knew very little about “shorting” the stocks, I happened to be buying during the bullish times, which helped me reduce risks and gave me an edge.

In my mind, this is one of the simplest, yet most powerful strategies one can employ as an investing technique.  I simply lost the battle (but not the war) in the last year or two because I kept buying stocks when the market started turning, hoping it would reverse when the underlying trend was clearly bear (Dow going from 14,000 down to 6400s is nothing but a down trend).  If I had simply learned this lesson early on and invested on the bear side (shorting stocks), I would have been very “successful” without even knowing much about investing in general.  I kept telling myself “it’s gone down too far”, “it can’t go down any further”, or “the market HAS to turn around”, which ultimately hurt me in the end.

The tide seems to be turning now after hitting the recent bottom of Dow Jones at 6470 in March (temporary?) The market has rallied over 35%, the biggest rally since 1933, and still hasn’t lost its fume.  Some are still calling this a bear-market rally, but more are starting to recognize this strength as a reversal into a bull market.  Hell some went as far as calling the March 2009 low as THE bottom.

I personally am skeptical that we’ve hit the bottom, but the market is clearly trending up, and I would be very cautious if you’re betting against the bulls still.