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Compassionate Investors

Does an investor invest under the influence of compassion?  What compassion has got to do with investing?  Those are the questions I will be discussing.

What Is A Compassionate Investor?

An active compassionate investor is an investor that buys or sells a financial instrument because of the high demand to sell or buy its peers in a sector.  This is different from the socially responsible investment.  

Sometimes, an investor acts by compassion to invest based on other factors such as mergers or acquisitions.  In other cases, it is just because of the market sentiment relating to a sector.  

Examples Of Compassionate Investors

Recently in 2019, there was a high demand to buy Nvidia stock.  At that time, AMD stock was lagging, but as the Nvidia trend was entering the 5th wave, more and more compassionate investors began to buy AMD stock. 

After many years in consolidation, the bullish cow Microsoft stock start to receive compassionate cash inflow because of the bullish demand for technology giants such as Apple, Google, Amazon and Facebook. 

The high demand for the technology stocks plus the gradual rise of Microsoft from its longest sleep since the year 2000 has caused smarter investors to begin to accumulate Microsoft stock when it was still consolidating.

Another stock that compassionate investors are circling is Pinterest stock in 2020.  Advertisers such as Google and Facebook were in high demand for sometimes.  Therefore, early compassionate investors began to load also Pinterest stock in the hope that it will benefit from the same high demand.

Understand that I hold Pinterest stock at the time of writing this article.

Factors That Attract Compassionate Investors

1/ Booming financial market sectors
2/ High demand to buy or sell a stock
    amongst its peers.
3/ Nostalgy of a bullish momentum in a sector.
4/ Change of mometary and economic policies that will have a lasting benefit on a sector.
5/ Overbought sector that is negatively correlated to another sector can cause a rush of compassionate investors towards that sector.
6/ Uncertainty or fear relating to a sector may also lead to a compassionate investment in another sector.

Dangers Of Compassionate Investors

A Compassionate investor can quickly get into trouble if he or she does not take into consideration the financials.  The reasons to become a compassionate investor should complement a valid fundamental analysis.  Many compassionate investors can get carried away because of a past success and ignore the financials or the markets.

Far from being a plug and play investment strategy, it requires a skilful investment approach because one should not leave any stone unturned.

Who Are Compassionate Investors

Compassionate investors are usually investors that were creaming a sector from the get go of a bullish trend, but have finally decided to buy also the little ones in the same sector because of the high demand in that sector. 

Those are usually investors that have been satisfied, and wanted to end the bullish party on a compassionate ground.

Compassionate investors are also investors that have been hedging their initial bullish positions by buying the peers in the same sector.

For example a bullish investor that was buying Nvidia stock may decide to hedge that position by selling one of its peers.  As Nvidia stock is coming to the end of the fifth wave (bullish trend), he will surely close his Nvidia bullish position.

At the time of closing that position, the investor may decide to buy AMD stock (one of Nvidia peers) on a compassionate ground if he or she was not still using AMD as a hedging stock for Nvidia. 

Very often the remnants of  a bullish sector that have a strong balance sheet, but were latent are the favourites of compassionate investors.

Others investors that were too late to invest in a booming sector usually join compassionate investors because of the bullish momentum and sentiment.

The growing demand for the components of a bullish sector is the main factor that attracts the compassionate investors.

Compassionate Bearish Investors

So far, I have been highlighting the activities of the bullish compassionate investors, but let's not forget the bearish investors.  There are also bearish compassionate investors and traders.

Should one call that also compassion?  Yes.

The same attitude is in play except that this time the sector is intrinsically bearish.  Majority of bullish investors headed to the exit door due to both the degrading fundamentals and bearish market sentiment.

Therefore, if they have been busy selling the major players in that sector for a while, one can rest assured that at the time of closing those initial bearish positions, they will be checking on other components that are more likely to decline but so far have escaped the short sellers. 

Similarly to the bullish compassionate investors, bearish investors must also combine the fundamentals and other factors before selling like donkey compassionate investors.

Please note that even professional short sellers try to avoid selling resilient stocks that pay dividend or have a reputable management or CEO.  When selling, be very agile because the markets rise more often than they decline.  Do not sell and forget or seat idle because it is not prudent.

Conclusion

The Compassionate investment can produce rapid gains in both bullish and bearish sectors because of the market sentiment and high demand. It is going on quite often. 

An investor who knows how to play the compassionate investment game will surely be rewarded.  Also note that the best compassionate investors are those that truly understand the sector or were already in it before the frenzy high demand. 

Being a compassionate investor is not about emotion or heartfelt investment instinct, but the ability to anticipate the reactions of the major market players at the end of a sector"s trend.

Am talking too much?  I hope not.

Hopefully, this article has been useful to you.  If that is the case, please share it, and say few good words about us in various investing forums.  I will really appreciate that.
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Happy Trading To All.

This article is written by George Beaulieu
Founder Of Stochastic-MACD.com