Whether you are looking at property investment, stocks and shares or any other kind of financial transaction, one phrase springs to mind “the trend is your friend”. This effectively means that following the trend can be a very lucrative and a fairly simple way of making money in investment markets. However, is it really as simple as following the trend?
While many people do make significant returns on their investment by following the trend, you do need to ensure you are in nearer the bottom of the curve than the top, and you also exit before the trend starts to turn. Sounds simple?
Is sentiment the key?
In many ways you can look at the statistics surrounding UK property and come to the conclusion that perhaps we are moving towards the overbought end of the spectrum. This would be a perfect summary of the UK property market at the moment but the fact is that sentiment and momentum is likely to see the market pushing further ahead in the short to medium term. How far and how quickly remains to be seen but while statistics can support any investment decision, they also need to be reviewed in tandem with sentiment.
Quote from PropertyForum.com : “In what could be a major development for the UK property market, last week’s trade mission by Boris Johnson and Chancellor George Osborne seems to have attracted the attention of Chinese investors.”
It is also paramount that any investor looking to follow the trend puts in place some form of stop-loss because markets can turn very quickly, they can be impacted by outside influences and unless you have a very strict investment criteria you could be left nursing heavy losses for some time to come.
Doing your own homework
While in many ways the trend is your friend, you would be foolish to invest any money into the property market or any other investment market without doing your own homework. The market you are looking at may have the perfect criteria for growth in the short to medium term but outside influences, such as for example the European debacle over the last few years, could change the whole worldwide outlook.
It is also very important that you fully understand what you are investing in, what elements you are exposing yourself to and the potential upside and downside. Following the trend blindly, following like sheep, can be lucrative and highly rewarding but it can also be challenging. Understand the markets, know your mind and while keeping a close eye on the investment trend, do not lose sight of your own investment strategy.
Nothing is ever straightforward
If you look back at historic graphs and statistics for any investment market you will likely see the signs of a turn in sentiment, a move from a downward spiral to consolidation and indeed the start of a significant bull run. In hindsight this all looks very simple, it all looks very straightforward, although in reality it is not that easy.
By all means use historic data and historic trends to try and predict the future but do not jump into any investment market as soon as you spot “a turning point” because there needs to be some momentum behind this turning point before investing. The fact is that in investment markets, history does repeat itself and it is possible to spot turning points both on the upside and on the downside. However, predicting future turning points is not as easy as it looks when studying historic graphs and data!