A:

Generally

, an investor "chases the market" when he or she enters into a highly priced position after the stock price has increased rapidly or become overpriced. An investor who exits a position after the security has lost considerable value also is said to be chasing the market. Both positions suggest that the investor chased the market by following trends unwisely. Many investors unknowingly chase the market and endure large losses as a result.

During the dotcom bubble, for example, many investors sought to profit from buying shares of internet and technology companies that were doing well. The popularity of dotcom companies eventually dropped and the investors who had chased the market were left with big losses.

Investors who chase the market typically make investment choices based on emotion rather than careful consideration of market trends using statistics and financial data. For this reason, this strategy has been widely criticized and most financial advisors warn against it

For more on this topic, read When Fear and Greed Take Over and The Madness of Crowds.

This question was answered by Bob Schneider.

RELATED FAQS
  1. What lessons did the tech bubble crash give to investors in the Internet sector?

    Learn how investors contributed to the dot-com bust and how Internet services and investing has changed since the market ... Read Answer >>
  2. Is the banking sector a good choice for value investing?

    Find out why the banking sector is attractive to value investors, who typically look to buy discounted stocks during times ... Read Answer >>
  3. How does quantitative easing in the U.S. affect the stock market?

    Read about the impacts of quantitative easing, or QE, on prices in the stock market, and learn some of the possible implications ... Read Answer >>
  4. How should young people invest in a bear market?

    Learn strategies young investors can implement during a bear market that present the greatest opportunity for long-term investment ... Read Answer >>
Related Articles
  1. Investing

    JPMorgan Chase: Too Big (And Profitable) To Fail

    If there's any bank that's too big to fail, JPMorgan Chase & Co. may very well be the best example. Just look at its return on equity.
  2. Investing

    JPMorgan Chase & Co.:The Big Bank

    JPMorgan Chase & Co. isn't just the oldest and largest bank (in terms of assets) in the U.S., it's among the best stocks from the US banking space.
  3. Personal Finance

    Chase Sapphire Card Perks Costing the Company Millions

    A victim of its own success, to the tune of $200-$300 million for JPM.
  4. Investing

    Why Chasing Returns Might Not Pay Off

    Here's how chasing returns harms performance, and what you should do instead.
  5. Investing

    JP Morgan Stock: A Dividend Analysis

    Explore an detailed analysis of JPMorgan Chase's dividend and financial statements, and look at an analysis of its competitors' dividend ratios.
  6. Personal Finance

    Maximize Your Chase Ultimate Rewards Points

    With more than one Chase card that gives Ultimate Rewards points, you can sometimes use the system to stretch your awards to be worth extra. Here's how.
  7. Personal Finance

    Credit Card Review: Chase Freedom (JPM, AMZN)

    Learn about the Chase Freedom card and how it earns 1% cash back on every purchase and up to 5% on purchases in quarterly categories.
  8. Managing Wealth

    Checking Account Reviews: Chase Premium Platinum

    Which perks and services come with Premier Platinum and is it worth the cost to you?
  9. Personal Finance

    Credit Card Review: Chase Slate

    Take a closer look at one of the most popular balance-transfer credit cards on the market: the Chase Slate card with a 0% balance transfer fee.
RELATED TERMS
  1. Chasing The Market

    Entering or exiting of a trend after the trend has already been ...
  2. Dotcom Bubble

    A rapid rise in equity markets fueled by investments in internet-based ...
  3. Balance Chasing

    The gradual lowering of a consumer’s credit limit by a credit ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. Chasing Nickels Around Dollar Bills

    A slang term describing what a company's management does when ...
  6. Paper Millionaire

    An individual who has achieved a high net worth as a result of ...
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
Trading Center