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. How has investing in the Internet sector evolved over time?

    Learn how early investors of the Internet sector received a valuable lesson and influenced modern-day markets after the dot-come ... Read Answer >>
  2. How do investors lose money when the stock market crashes?

    Over the last hundred years, there have been several large stock market crashes that have plagued the American financial ... Read Answer >>
  3. How do hedge funds use leverage?

    Learn how hedge funds use leverage techniques such as margin, credit lines and financial derivatives to increase return on ... Read Answer >>
  4. What are common trading strategies used in a bull market?

    Discover four commonly used trading strategies by investors and analysts to make profits from a prolonged bull market, including ... Read Answer >>
  5. What are common investing mistakes in bear markets?

    Learn why investing in a tumultuous market can be challenging even for the most experienced investors. Avoiding these common ... Read Answer >>
  6. How attractive is the retail sector for a growth investor?

    Learn how retail's volatile nature makes it attractive to growth investors, and discover the strategies these investors employ ... Read Answer >>
Related Articles
  1. Stock Analysis

    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. Savings

    Checking Account Reviews: Chase Premium Platinum

    Which perks and services come with Premier Platinum and is it worth the cost to you?
  3. Credit & Loans

    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.
  4. Investing

    Jamie Dimon: Success Story

    Jamie Dimon's career path to the President and CEO of JPMorgan Chase & Co. (JPM) showed just how determined and shrewd he could be. He is loud and unapologetic and his results speak for ...
  5. Stock Analysis

    Who Are Bank of America’s Main Competitors? (BAC, JPM)

    Explore information and analysis on JPMorgan Chase, Wells Fargo and Citigroup, the three banks considered the main competitors to Bank of America.
  6. Stock Analysis

    Trading Idea: Key levels for JP Morgan

    New York, August 6th (TradersHuddle.com) - Shares of JP Morgan Chase & Co. (NYSE:JPM) ended the trading session close to calculated support at $34.76, a level that will raise the attention ...
  7. Active Trading

    The Financial Markets: When Fear And Greed Take Over

    If these unpleasant emotions are allowed to influence your decision-making, they may cost you dearly.
  8. Chart Advisor

    4 Stocks For Traders To Watch

    Traders should keep an eye on these movers for the perfect entry, but avoid chasing them.
  9. Stock Analysis

    Hidden Gems For 2010

    These hidden gems might just be the perfect fit for your portfolio in 2010.
  10. Personal Finance

    Why Social Media Isn't Like The Dotcom Boom

    Many investors see social media stocks as a bubble waiting to burst. Find out why they're wrong.
RELATED TERMS
  1. Jamie Dimon

    The chairman, CEO and former president of JPMorgan Chase & ...
  2. Balance Chasing

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

    When an investor has essentially risked all of his capital for ...
  4. Dotcom Bubble

    A rapid rise in equity markets fueled by investments in internet-based ...
  5. Internet Bubble

    A rapid rise in equity markets caused by speculation into online-based ...
  6. Retail Investor

    Individual investors who buy and sell securities for their personal ...
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center