Those of you who attended our recent Webinar on The Psychology of Trading will remember our discussion on herding and how it affects our share purchase decisions.
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The example we used was Medibank Private (ASX:MPL) and we discussed how many novice and seasoned investors may have seen the Medibank IPO as a good long term investment.
With an IPO price of $2.00 for retail shareholders and market analysts at lead managers Macquarie’s setting a target of $2.62, it seemed like a good investment. The press was full of stories about the IPO and what it meant for the future of healthcare in Australia and the “herd” was forming.
History shows that the share price did rise as anticipated and peaked at $2.59 on 19/02/15 after which it began to fall to its current price just above issue price at $2.04. A good stop loss setting would have seen you sold out between $2.40 and $2.50 and if you missed that, EquitySmart went Bearish on the stock on 26/03/15 at $2.35, still offering a 15% return in under 4 months before brokerage.
I am in no way suggesting Medibank Private is not a good long term investment, only time will tell that. I am saying is that it is not always wise to follow the herd, but if you do, with your EquitySmart Education helping you, you will know when to leave the herd and find another opportunity.