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It's difficult to pick your own shares successfully – research consistently shows that more than half of retail investors in the UK and US who pick their own shares lose money.
Even for skilful investors who buy a share and see it rise to a 52-week high, it's not all plain-sailing. The question soon becomes whether it is time to sell and take the profit, or whether one should buy more and ride the uptrend.
Shares in Telecom Plus (LON:TEP) are currently trading close to a 52 week high, with the share price up by around 2.75% to 1,720p over the past week. On a one-month basis, the Telecom Plus price has risen by 5.26%.
For investors holding the stock (or considering buying it), the question is: what now?
52-week highs are a popular market indicator. But research shows investors can be left wondering what to do when it happens when a 52-week high is hit. Here’s a primer on what the academic research says...
What happens when a share hits a new high?
52 week highs are always good news. But surprisingly, the prices of high performing shares can be slow to move when they publish positive earnings news.
Research shows this happens because investors are cautious about bidding high performing shares any higher (even if they deserve it). Psychologists call this anchoring. As humans, we tend to take our time when it comes to changing our opinions in the face of new information - even when it's good news.
This emotional tug-of-war often ends with the ‘new high’ stock drifting higher in price over the coming weeks and months. The upward trend is called “post earnings announcement drift”. As the news sinks in, momentum takes over and the price moves higher.
What does this mean for potential investors?
With Telecom Plus trading close to a 52 week high, it’s possible that investors in the market are uncertain about where the price will move next. It's important to remember that momentum on its own is no guarantee of future returns.
To get a better idea about whether this trend will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with Telecom Plus that you can find out about here.