Investors new to the world of stocks and shares often find themselves navigating their way through a sea of articles and investment advice without being confident as to what advice is good and what isn’t.

It can seem that there are almost as many different investment strategies out there as investors, so it is important to exercise caution before proceeding and if in doubt get some independent financial advice.

This article explores one investment approach that does not always come with the financial health warning it should.

Don’t follow the trend.

1.     The Trend Is Not Your Friend, In Fact He Doesn’t Know You At All.

There is a phrase that goes ‘the trend is your friend’. It’s based on the view that if a share is rising that trend may continue and you can use it to your advantage. Nice theory, if your capacity for risk is similar to a stuntman.

I recently read an article that was suggesting that investors should forget trawling through accounts, reading reports and looking at things like the price to earnings ratio and instead just look at upward trends and follow that. If it was that simple, I guess everyone could just follow the trend and get rich right?

2.     Driving At 90mph Five Feet From The Car In Front Is Risky

Following the trend for a particular stock is like driving your car at 90mph five feet behind the cars in front.

If you know exactly when to brake, you might be ok. Of course, you cannot know when to break anymore than you can know when to time the market.

3.     If It Looks Too Simple, It Is.

If an approach to investing in the stock market looks too simple to be true, it probably is.

Buying a share in a company because a line is going up on a chart is about as sensible as buying a company because you like the name of it.

Following a trend is dangerous not least because it is attractive to all of the qualities that should spell danger for the investor. A herd mentality is not an attractive quality for an investor hoping to increase their wealth, but even worse is the passive nature of the ‘following the trend’ process.

To suggest that an investor should not pay due attention to the fundamentals of a business is like suggesting that surgeons should pay more attention to their image than all of that inconvenient stuff to do with the body and surgical procedures.

Next time you read something that is advocating an investment strategy that suggests following a trend, think carefully before following it and remember that you can’t buy what is popular and do well, as Mr Warren Buffet once said, and he is doing quite nicely indeed. 

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie