Don’t Sweat The Small Stuff – How To Profit With Big Ideas

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April 27, 2009 1:25pm NYSE:XLF

ideaFailing to identify big market moves resulted in vicious double digit losses. Focusing on ‘small stuff’ won’t make a portfolio whole. It’s time to forget about the small stuff and focus on the next big moves to land a home run.
If you are a go-getter, chances are you tackle any task with a full-steam-ahead attitude. Whole-souled involvement in a project however, can cause the “can’t see through the forest for the tree” effect. Clearing the mind often helps. This could be compared to being stuck in a labyrinth and getting help from someone with a birds-eye view of your situation.

When it comes to investing, it’s easy to get sidetracked by factors that seem important but in essence cloud your judgment. This article is designed to provide a “birds-eye view” of the current investment environment.

Right now for example, it’s earnings season. Not a day goes by where a company doesn’t either exceed or fall short of their earnings. The market rallied when Wells Fargo (NYSE: WFC) beat estimates but dropped when Goldman Sachs (NYSE: GS) also beat estimates. What does that mean?

Small stuff distractions

There is at least a hand-full of commonly used indicators and time wasters that could be filled away in the “don’t sweat the small stuff” drawer. None of them alone is bad per say, but they might keep you from focusing on what’s really important (more about that later).

Distraction No. 1: Stock picking

Buying individual stocks is exciting but dangerous. One piece of bad news might send a stock tumbling (or vice versa). Hyped up stocks tend to fall harder and faster than the broad market. Numerous studies show that baskets of stocks (or indexes) perform better than stock pickers. Mutual fund managers are an outstanding specimen of stock picking under performance.

Not only are broad market indexes and sector indexes safer, they are also easier to predict. Back in October 2008 for example, the ETF Profit Strategy Newsletter marked financials as a “down-ward spiral with no stop-loss protection.” At the time, we did not know which companies would go under, but it was clear that ETFs like the Financial Select Sector SPDRs (NYSEArca: XLF) should be avoided.

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