Monday, April 9, 2007

Finding Good Advice

In my experience in following the market, the toughest thing is knowing when to sell. Out of all those "experts" on television, none will really tell you when to sell. There are two major opinions that people take, and they are 1)people that are always pesssimistic on the market, and 2) people that are always bullish. A majority of the people you see on television are in the second group.

The pessimists' view goes something like this. It's much safer for them to be negative because they can't really be wrong. These are usually what I'd call "Wall Street Outsiders." If stocks go down, they were right. If stocks go up, people don't get mad at them because stocks went up and people are happy. If stocks have been going down, they will continue to go down because of poor performance, bad economy, etc. If stocks have gone up, then companies can't continue their pace of growth, and are due for a decline. It's a viewpoint that doesn't allow you to get hurt, but doesn't make you much money either.

The optimists are most people you see on television. They buy into the Wall Street money machine. The more excited they get the general public on investing, the more everyone in the industry makes. So for example, if CNBC tells people to buy, buy, buy, and has shows like "Mad Money", and "Fast Money", people are likely to follow that sentiment. People get excited about the idea of making easy money. So CNBC gets people to buy stocks and mutual funds, and the brokerages and fund managers pay them millions in advertising dollars. When the market is strong, you have to be invested because you can't afford to miss out. When the market is weak, you better buy in because stocks can't stay this cheap for long. This isn't as safe of a theory, and it can cause you to lose money quicker. It's a classic example of risk vs. reward.

These are examples of why it is hard to consistantly beat the market. You have to learn how to sift through all that you hear in the media. Now nobody can be right every time, but if you learn how to balance the bulls vs. the bears, the pessimists vs. the optimists, and take the best advice from both, then you're ahead of most investors.

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