To help narrow the gap between what the Wall Street pros know and what outsiders to the industry do not, Chris Linkas, the European Head of Credit at Fortress Investment Group shares the knowledge he has gained through years of financial industry experience locating opportunistic investments in European markets.
For instance, many individuals believe that certain steady growth companies such as utility sector firms are immune to the declines of more speculative, riskier investments. Linkas points out that fears related to interest rate hikes have resulted in price declines of nearly 15 percent in those “safe investment” stocks, pointing to Fortris, Inc. and Enbridge, Inc. as two recent examples.
Additionally, there is a skill that professional investors have in their ability to distance themselves emotionally from their investments, which benefit private investors as well. One particular area where individuals can hinder their wealth growing efforts is by vowing to never again invest in some company, let’s call it XYZ, after taking a sizable loss on it.
Linkas points out a case where Avigilon was dropped from a model portfolio after several quarters of missing their earnings targets (https://www.discogs.com/artist/2617983-Chris-Linkas). However, Avigilon experienced a down the road reversal in their performance and it became an attractive growth opportunity again.
A later investment in the stock returned $27/share as an acquisition bonus.
Another area where private investors’ information diverges from their financial industry counterparts is with regards to the effect that upcoming events have on the price (Kirkland). A lot of short term investors use the momentum generated by hype and rumor to churn a quick buck and move onto their next trade.
Individuals who acquire stocks based on a positive upcoming news event may find themselves disappointed by the drop in share price once the news is made public.
This principle extends to all types of news, with mergers and buyouts being at the top of the list.
Lastly, Chris Linkas points out that many private investors may be disheartened to learn that even with all of their years of training, news subscriptions and analysis that professional investors at major institutions don’t know everything.
The pros make plenty of costly mistakes and can be a victim to beliefs that blind them and keep them locked into losing positions.
There’s a saying on Wall Street that you’re only as good as your last trade. A principle understood by every professional investor.
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