The Biggest Mistake Investors Make
I walk to work the same exact way every day. It's the same routine of traffic signals, crosswalks, and black-spotted sidewalk.
Even though I know there are other, slightly shorter ways to walk to my office, I've gotten into the habit of walking the same way every day. And I bet you do the same thing.
Whether you walk, bike, or drive to your office, I bet you take the same route every day, even though there might be a technically shorter route.
In fact, I bet wherever you go, you have a preferred route you usually take. I do. Whether I'm going to the grocery store around the corner or taking a three-hour trip to the beach, I generally always drive the same route.
Why do we do this? I don't know. Maybe we're creatures of habit. Or maybe we're just too lazy to try to learn a different way to work.
Either way, this behavior is representative of one of the biggest mistakes we can also make as investors. That is, studying only one sector of the market, or learning only one path, one route, to investment profit.
Investing Is Not a Single-Path Walk
Of course, you've heard a million times that the most important thing to do when investing your money is to diversify.
But it's just as important to diversify your time studying different markets, even if you don't diversify your money.
Why's that? Simply because all sectors of the market are connected. They're all intertwined in a complex relationship of value — a giant web of positive and negative correlations, roiling and boiling up and down on a minute-by-minute basis.
It's Investing 101: Many market sectors have inverse relationships. What happens in one market will almost always affect another. When currency markets decrease in value, commodities like gold and oil tend to go up... when interest rates rise, bond prices fall... when bond prices fall, equities increase... etc.
But all of these markets ultimately correlate in other ways with each other. Interest rates typically have an inverse relationship to the dollar... the dollar affects oil and energy prices... energy prices basically affect everything from auto manufacturing to cryptocurrency.
So, in what we might think of as a “wave effect” of sorts, what happens in one market will almost always affect another... which will almost always affect another... which will almost always affect another... etc.
In short, all of the major investment markets are connected. And even if you're not diversifying your investments, it's important to diversify your knowledge of other markets.
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Step Outside of Your Investment Comfort Zone
In a recent interview on CNBC, TD Ameritrade's CEO, Tim Hockey, said, “Everyone trades in what they know,” pointing out that millennial investors are mainly focused on tech right now.
Hockey is right. Everyone mostly trades the markets they've studied the most. I know I've personally done this for sure.
I do think it's good to spend a lot of time studying one sector. That way you know all the ins and out of the entire market. However, no investor should spend 100% of their research time on one single sector.
I want to give you some homework: Check out a sector of the market you never thought you'd be interested in — any one, it doesn't matter. Worst-case scenario, you end up learning something new.
Are you mainly an energy investor? Check out cannabis investing.
Are you mainly a crypto investor? Check out cobalt.
Again, it doesn't matter which sector you choose. But I urge you to take a little time to step out of your investment comfort zone to learn something new and how it potentially affects your main investment focus. When you diversify your knowledge, you'll increase your investment success.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bubble and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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