The false averages trap

Letting the market's average performance guide your investing could mean missing big opportunities.

Summary: Relying on average market returns to guide investment decisions can result in investors taking an overly negative view of the opportunities that exist. The ASX200’s limited diversity has contributed to negative sentiment, as the financials and natural resources sectors have dragged overall average performance down. Strong performers can still be picked from a market with subdued average growth. For example, as financials and resources have taken a hit in the UK market, the information technology sector has delivered very strong results.

Key take out: Value investors should be aware that the Australian economy looks set to move away from traditional investment areas, and they should look for companies capable of succeeding in challenging market conditions.

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