Wall Street Sector Selector

Recent market meltdowns and subsequent rebounds exposed the roles of greed and fear, the herd mentality and human psychology in global stock market action.

Successful investors understand their “humanness” and how to get their emotions to work for them instead of against them.

Greed, Fear and the Herd

Everyone has heard about greed and fear being the two primary driving forces behind investor decisions. And that is true because, while much has been written about markets being rational and investors making rational decisions based on earnings reports, price earnings ratios or technical analysis, the fact is that markets are not rational, as witnessed most recently in 2008’s massive selloffs.

Greed and fear were at work.

And this has been seen time and again throughout history.

The Dutch had their tulips, Sir Isaac Newton was wiped out in the South Sea Trading Company’s meltdown in …

Bull runs show diversification in poor light. The Conglomerates Sector is a nearly inevitable victim when one or the other industry experiences a surge in demand. Diversified companies cannot refocus their resources to leverage such opportunities fully.

The shoe changes feet in troubled stock investing times. A conglomerate has best chances of surviving a depression. Diversification is also a meaningful hedge against rampant inflation. This approach can help in stock investing as well.

The herd mentality is a bane of stock investing. We pour hard-earned capital to copy what the media and stock brokers tell us others do. The benefits of contrarian stock investing deserve greater attention. A tangible step in this direction is to diversify every stock portfolio.

Not all conglomerates succeed. Some lose the benefits of operational autonomy because they are top-heavy. Others build high fixed costs by decentralizing even common management functions. The centralization-decentralization balance drives business success in