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Many of my friends consult me at times what they should do when their equity or fund has lost ground ,as in life it depends
The first category, quite common, is known as 'momentum' or 'trend following' investing.
In simpler terms, this involves being attracted to assets that seem to be consistently growing. When people observe an asset rising day by day, they naturally get excited and are tempted to jump on the bandwagon. Hence, if a fund is constantly appreciating, it's quite likely that a lot of people will buy into it. Many platforms love to promote such funds that have been performing exceptionally well over the short term. And when these funds outpace the market's rise, people often feel ecstatic.
Fashion hunter
As a trend investor, you must be prepared to take action. To sum up, whether you're chasing growth or following a trend, if you realize that's what you're doing, it's important to have a stop-loss in place for times when there are significant drops.
This will include at times the thematic hunter,t0 traders, technical traders.
Sniper
The second category of investors are value investors. These investors have their own strict standards when it comes to timing and choosing investments. As value investors, they usually buy when they feel an asset is undervalued. So, when these investors face a situation where their investments are 'underwater', they are unlikely to use stop-loss strategies as they have already made a calculated decision at entry.
The action they typically take is to double down on their position. Therefore, understanding the reasons for your investments is crucial as it directly affects the strategy you would adopt going forward.
Fanboy or girl
The third situation involves investors who might buy a fund because it has a star manager or it's known as a star fund. They hear positive reviews about the fund from their surroundings and decide to invest. One important point to note here is the standard by which we define a star fund. Is it reasonable? For instance, a fund manager might have been managing a fund for just a year but has delivered impressive results.
Without strict standards, they could be labeled as a star fund manager. However, I believe there should be a minimum period of three years to be good enough
So what type of investor are you? When you chose what to do with your investment depends on why you entered.
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