Action and reaction

It’s dangerous to move just because other people do. Often, the crowd will glom onto an overhyped stock with no staying power or bail out of quality companies because of political developments or a negative opinion from an analyst. In such cases, we prefer to chart our own path, usually ignoring the hype and sticking with quality. Longtime readers know we advise our subscribers not to fall prey to groupthink, instead focusing on the fundamentals.

However, it’s also dangerous to stick to an earlier opinion when transformational news crops up. Of course we like being right, but nobody wants to be dead right.

The dichotomy between sticking with a stock despite transient bad news and selling a stock on genuinely bad news can be difficult to embrace. But in our view — and in our hard-earned experience — it’s worth an investment of time and effort to assess the “badness” of news rather than simply buying or selling on instinct. 

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