Where the eyes go, the body goes (The Financial Athlete #57)

If the ball is high, you jump to reach it. If it is low, you bend down to catch it. The body follows the eyes.

In the same manner, your money follows your eyes. If you analyze only 3 stocks, your money will flow in only up to 3 stocks. If you visit Open Houses in only one county, you will buy residential real estate in only one county.

Focus your eyes too narrowly and you will miss out on better opportunities. You may also find yourself trapped in a few illiquid investments. Beware of focusing your eyes too narrowly. Look up. Look down. Look left and right. Look behind and in front. Look everywhere. The more places your eyes look, the more opportunities you will see.

Occasionally I get asked, “Should I be a top-down or bottom-up investor?” I answer, “Be both.”

A top-down investor looks at overall economic conditions and industrial sectors and makes investment decisions based on his analysis of this. A bottom-up investor focuses attention on companies on an individual basis and concerns herself less with economic and industrial conditions.

If you see an economic storm on the horizon, hold onto cash. As the storm subsides, oftentimes the best value for the stock of strong company is to be found. In time the stock of that strong company will fall in favor again.


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