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Beginning of the year is usually a good time to thinks about what happened in the past and what to expect in the new year.
Trying to predict what will happen in the short term can lead to significant financial losses.. Here are five stupid investment decisions, than investors made:
1. Dealing with volatility
Given the huge volatility in recent years and increased interest in it, and an asset were crated, that is traded on the Chicago options exchange. Several funds were created to follow the VIX index, enabling investors to trade volatility.
The problem here, as in all short-term strategies is the ability to create a trading strategy, able to predict market volatility.
And while trade volatility has a certain logic for institutional investors and hedge funds, and insurance instruments, the trading of individual investors, it is equal to gambling.
2. Buying bond funds.
Interest rates in the U.S. steadily declined since 1980, when they reached double digits. At present levels of short interest revolve around zero, while interest on 30-year bonds are extremely low – about 3%. These low rates are expressed in historic lows for many instruments, such as deposits and mortgage bonds.
Given that, many experts believe it is a matter of time interest rates start to rise. And because bond prices move in the opposite direction of interest, it is very likely to generate significant investor losses.
3. Speculative currency
Like the volatility trading, trying to speculate in currency and to bet on the movement of one or another currency in the short term, there is again a lot to do with gambling. Things get more complicated when using margined provided by forex brokers. Trading margin at risk of a single mistake can bring them substantial loss of capital.
4. Buy gold
After its outstanding performance in recent years, trading in gold is extremely difficult in terms of predictable price of the asset. Despite the risks to the global economy and the threat of increasing uncertainty and worsening situation in Europe, the price of gold is not moving only upwards.
Gold has appreciated by 150% over the past five years, reaching a historical record over the past year. Aggressive buying of precious metals at current levels, making investors very open to risk adjustment of the metal to their accounts zeroed.
5. Investing in social media
Social media are other advanced asset today, as we have seen in several public offerings and other forthcoming this year. Mass hysteria towards the sector with a brief history and unproven business model, creates a substantial risk of serious disturbances.
Many companies entering the social media category, reached market capitalization significantly older and mature companies in the sector experienced a significant number of crises. While it is possible that these companies have the potential for further growth over time, there is real danger of bubble like this since the “Internet bubble” in 2000.
Entry barriers in this sector are relatively low, and their fast-growing revenues associated with an equally fast-growing cost of promotion.