After a 7% increase in the week and 9% in the month of October, be careful not to fall into the temptation of making the most common mistake among investors. After the stock market goes up, investors usually get confident and apply. However, frustrations with the continuity of the movement lead to more losses than gains in the short term.
Driven by optimism in the international market, the Ibovespa closed Friday with a rise of more than 2%. It is undeniable that after a rise we became more optimistic that the scenario has finally changed.
As I wrote in early October, it is undeniable that the Brazilian market looks reasonably cheap.
However, you have to be careful with intense highs like this month.
The stock market hardly goes up in a linear trend. Usually strong ups are followed by corrections or accommodations.
One of the biggest mistakes of stock investors occurs precisely because of this effect.
Many are excited by the rally and invest soon after it occurs. They imagine it will recur in the coming months and look for short-term gains.
Frustration at not having the same income as they have seen in the recent past leads these investors to the mistake of redeeming.
A survey released by the manager Guepardo Investimentos in its letter to investors clearly points out this flaw.
Despite their stock fund showing one of the best returns on the market, they realized that 80% of their individual investors, who invested through brokerage firms, redeemed in less than a year. Only 4% remained for more than 2 years.
This study considered only the last 3 years and in that period its fund yielded 77.5%.
However, even with this profitability, 50% of those who redeemed in this period had negative returns.
Guepardo’s research shows well the effect of investors rushing to invest after a strong rise and ending up rescuing at a loss in the short term.
Remember, investing in stocks carries risk and should always be carried out with a long-term horizon, that is, more than five years.
Michael Viriato is an investment advisor and founding partner of Investor’s House
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