By MoneyMorning.com.au

The market’s recovery is taking hold.

Four of the past five sessions have pushed Australian stocks into the green — and overnight, the US markets pushed past a rocky start to close higher again.

It goes to show that, although we investors are navigating a turbulent time, volatility is a double-edged sword.

Stocks go down, yes…but before you know it, they can snap back — and put your portfolio back on track.

That’s why only two types of investors will get burned in today’s market.

If you get smart, you can make sure you’re not among them…

The first type of investor that this market is burning is the person who insists on letting losers run.

These investors usually suffer from ‘old mate syndrome’.

You might have suffered from it yourself at some point.

Old mate syndrome is not uncommon. But it can seriously hinder your wealth creation.

This condition stops you from selling a dog of a stock, purely because the broker, adviser or planner who put you into the stock is your ‘old mate’.

You feel bad about going against his advice…despite the fact that it’s your money at stake, not theirs.

Does it sound familiar? Some stockbrokers have forged entire careers on the back of this syndrome.

Some of them have been former colleagues of ours. We’ll save those details for another day.

Here’s our point — a rising share market can camouflage many ‘dog’ stocks.

As soon as the index starts to whip around, as we’ve seen over the past few weeks…the camouflage drops, and it takes the stock down with it.

When big investors choose to pare back risky positions, they tend to scrutinise stocks with the diciest business models first.

That’s why useless stocks go down and stay down when turbulence rocks the markets.

But if you’ve immunised yourself from ‘old mate syndrome’, you’ll be out of the stock long before the markets crush it.

The cure is simple. I’ve discussed it in today’s Money Morning Premium.

Don’t miss this opportunity

The second type of investor that this market is burning is he who sits on his hands.

We call this ‘paralysis by macro analysis’. It strikes investors who spend too long focussing on charts and meaningless stats.

This paralysis can drive investors crazy. It’s become more common as the mainstream financial media has ramped up its breathless discussion of what could be the next crisis or ‘black swan’ event.

The trouble is that, if you look hard enough, you’ll always find a reason to shy away from buying stocks…even in the midst of a powerful bull market.

That means you could get caught looking the other way when share prices go up. You’ll cost yourself a missed opportunity.

And when the market starts to lift off, typically small-cap stocks lead the way.

That’s because those who consider small-caps are usually the investors who are looking for the biggest bang for their buck. When they spot the market turning, they’re prepared to take more risk for greater reward.

(Speaking of great potential rewards, our Resources Analyst Jason Stevenson has just spotted four of the most exciting speculative companies trading today in the oil and gas sector. Balanced against calculated risks, these stocks could bring you tremendous gains…but only if you invest now.)

By the time other investors feel the stock market is ‘safe’ enough to re-enter, the small-cap horse has already bolted. The boldest small-cap players have scooped the richest potential gains.

So more conservative investors tend to go for what they think are ‘safer’ stocks — blue-chip, household name companies.

That’s fine for most investors. They don’t have the risk appetite to consider emerging companies.

But you won’t find too much innovation or excitement in the blue-chip space.

For that, you need to follow the small-cap sector.

That’s why this morning, we’re writing to you from the 5th Annual Australian Microcap Investment Conference, at the Sofitel in Melbourne’s CBD.

So, why are we here?

Well, we wanted to take the pulse of how others view the market and the outlook for stocks.

Hooked to the screen in our Albert Park office all day, it’s easy to fall out of touch with what’s going on in the real world.

We’re looking forward to hearing the CEOs and managing directors talk about their businesses and the opportunities they’re pursuing.

Just as importantly, we expect we may uncover some companies you should avoid.

This is the beauty of Money Morning and the rest of Port Phillip Publishing. We bring you original ideas without fear or favour. We are untainted by external advertising or corporate relationships.

Of course, we’re keen to tune into what other investors and analysts think about the current market.

You can’t gauge that through a computer screen. So here we are at the conference.

And if we meet any investors who’ve gotten burned this month…we’ll be sure to check them for old mate syndrome.

Cheers,

Tim Dohrmann+
Editor, Money Morning

Join Money Morning on Google+

The post Do Your Investments Suffer from ‘Old Mate Syndrome’? appeared first on Stock Market News, Finance and Investments | Money Morning Australia.

By MoneyMorning.com.au