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Rule 3: Know Which Assets to Buy and Sell

In: Intelligent Investing in Irrational Markets

Author

Listed:
  • Panos Mourdoukoutas

    (LIU Post)

Abstract

After developing a financial plan, investors must closely monitor the price of different assets that are closely correlated with macroeconomic and financial conditions, which may provide tailwinds or headwinds that affect their price performance. Stocks and commodities usually perform well in an expanding economy, while bonds usually perform well in a weak economy—though their performance depends on the factors that drive different business cycles and on historical valuations at the point of entry to an investment position. Bonds also perform well in the aftermath of a financial crisis, as investors cash out from stocks and commodities, as was the case in the financial crisis of 2008. This means that investors must diversify their portfolio not just across stocks, but also across asset categories—adjusting their allocation according to the direction of the economy.

Suggested Citation

  • Panos Mourdoukoutas, 2013. "Rule 3: Know Which Assets to Buy and Sell," Palgrave Macmillan Books, in: Intelligent Investing in Irrational Markets, chapter 3, pages 26-43, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-34289-8_4
    DOI: 10.1057/9781137342898_4
    as

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