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Don’t Invest like a Herd Animal

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Investing in the consensus isn’t always the right course of action. Beware when the financial press and the majority of analysts agree on something. It can be a sign that the opposite is true. This idea was fleshed out nicely in 2008 by Stephen McClellan in Full of Bull: Do What Wall Street Does, Not What It Says, To Make Money in the Market. Now you can see evidence of the phenomenon of herd investing again in the case of Europe. 

The Financial Times reports that Europe’s strong performance is a big surprise among investors and economists. Chris Giles and Claire Jones write:

The consensus view among economists until recently was that the US would outstrip its advanced economy rivals this year, driven by the economic stimulus from Donald Trump in the White House and the Republican party in Congress. But the “Trump bump” has so far proved surprisingly feeble. Instead the economic story of 2017 has been the euphoric eurozone.

Economic growth in the single currency area was more than twice as fast in the first quarter of 2017 than in the US, raising the question whether its recovery is just a pleasant blip or whether it is more deeply rooted and self-sustaining. The answer is of more than academic interest. If the European Central Bank believes the eurozone economy to be set fair, it can start to think about withdrawing the exceptional stimulus measures at its meeting in Estonia this week.

Read more here.

 

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Jeremy Jones, CFA

Jeremy Jones, CFA is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Jeremy is a contributing editor of youngresearch.com.