Weekly Market Commentary

Many investors like to view themselves as contrarian thinkers. Knowing that the popular, crowded trade offers little room for gains, they look for ideas that are correct, yet unpopular. By taking a
position that reflects wisdom that others have not yet seen, when the market eventually realizes these views are correct investors receive both monetary gains and the satisfaction of moving ahead of the
pack.

Many investors like to view themselves as contrarian thinkers. Knowing that the popular, crowded trade offers little room for gains, they look for ideas that are correct, yet unpopular. By taking a
position that reflects wisdom that others have not yet seen, when the market eventually realizes these views are correct investors receive both monetary gains and the satisfaction of moving ahead of the
pack.

Although this approach is attractive, it is also tricky because it fails to account for the role of emotion in investing. Despite modern financial theory’s reliance on unemotional investors acting in a rational way, people are often swayed by their environment and what they are witnessing. We may try to reduce outside influences over our decisions, but conquering this inherent bias is difficult.

A perfect example is the recent performance of the Dow Jones Industrial Average (Dow). On June 12, the Dow closed at 8,799. This value was above its 200-day moving average (MA), and finally put
the Dow in positive territory for 2009. Most investors deduced that the technicals were strong, valuations reasonable, and future gains likely. However, with the Dow 34% above its March low, people
were wary of chasing. If only prices would pull back 5 to 8%, this group was convinced they would buy the dip and ride prices even higher.

Full Report

Sean Hannon, CFA, CFP, is the publisher of EPIC Insights, a weekly newsletter providing Sean?s timely stock ideas and market commentary. Sean?s goal in EPIC Insights is to educate readers, giving them accessible advice they can use to manage their own financial future. The transparent portfolio that Sean has created in EPIC Insights has outperformed the S&P 500 during many investment cycles. Through this portfolio Sean offers readers a thorough... More