I forget who I heard that from but now that I have your attention let us remember the first rule of investing: Buy Low, Sell High.
The equity markets are trading near all time highs, and for the most part have experienced nothing but gains since the beginning of the year. Apple Inc. a company known for its product innovation and usability has lost a significant amount of value during the same time period. Only looking over the past 5 months is not a great example, but the cause of this downward price movement is indicative of a couple trends that “good” companies must continually fight.
Good companies, or good companies that people are talking about, have typically experienced a steady increase in stock price. As the stock price continues to move higher expectations and coverage from analysts increases which makes it more difficult for the company to keep all interested parties “happy”. Secondly, these companies often experience more direct competition. The increase in competition can lead to lower earnings as proper adjustments are taken to overcome this new threat.
So in essence the good company that is trading near a record high stock price might feel good to buy, but might not be the best investment choice moving forward. One of the best ways to avoid the emotional trap of buying a “winner” is to have a set investment process, often outlined in an investment policy state (IPS).
As the money management firm Invesco says it: “Intentional investing is the science and art of investing with purpose, prudence and diligence. It’s about thinking carefully, planning thoughtfully, and acting deliberately.” Our process that was formed in academia and refined through experience, takes this sentiment very seriously. After all, emotion should be saved for the enjoyable moments that span generations.