There has always been a tendency for investors to buy stocks because they’ve already gone up. Generally it’s because there is good news, and because it’s a common sense life experience. For example it’s common sense that if the Dallas Cowboys won the Super Bowl last year, you’d expect this year they have an excellent chance to repeat as champions. Unfortunately that common sense experience doesn’t always translate well to the stock market. What the Cowboys have to do is match last year’s performance. But with a stock, if their earnings are the same, the stocks will go down, because investors are expecting the company to do even better this year. The football equivalent would be expecting that since the Cowboys won the Super Bowl last year, they’d have to win Super Duper Bowl as well this year.
This is why many investors have disappointing investing results. They are chasing the performance of last year’s big winner. Even if the company does really great and somewhat exceeds last year’s performance, the stock may not do well. Expectations are for another great year, not just a good one. The real trick when it comes to investing is to invest in the company before they’ve had huge success, and before the stock has had a huge run up (i.e. they’ve won their stock market Super Bowl).