If you are like me your email inbox gets a lot of those oh
so enticing offers promising instant stock trading profits in just 15 minutes a
day and endless stock promotions. I spend a lot of time visiting financial sits
on the web kicking over rocks in search of ides so it is no surprise that I end
up on many of these mailing lists. What is surprising to me is that many of
these firms have been in business for some time so apparently people are
spending money to become the next Stevie Cohen or George Soros between dinner
and dessert. Folks must be buying those
stocks that will benefit from the looming crisis or loading up on those $.10
stocks with breakthrough technology that will change the world.
It must seem silly for me to say this since write for a subscription
service but there is a huge difference between advice and hucksterism. The guys
and gals on Real Money share their thoughts, ideas and the trades they make
with their own money which is light years away from Five Stocks to Buy if the
Government Shuts Down , or Six Stocks to Sell If The President Trips On The Way
to the Podium.
We need to see a healthy dose of common sense applied when
it comes to trading and investing our money. There is no magical system that
will make you risk free millions in just minutes a day. When you open the
account and decide you will make your living trading stocks or forex in your
spare time you are stepping into someone else’s arena and odds are you are mere
lunch money. I have done a lot of work on trader survival rates and returns of
late and you have a better chance of beating Lebron James in a one on one
basketball game than you do of being a consistently profitable trader in your
spare time. When I talk to successful traders like Tim Collins, Bob Lang or Bob
Bryne they are always working to define and refine their edge. You are up
against the best minds armed with the best technology and you have a better
chance of earning outsized profits betting a hard 8 every roll at the craps
table.
The other area where I see any illusion of common sense
thrown out the window is this idea that we can somehow predict where the market
is going and book huge profits in the process. Predicting the market sis an
absolute waste of time and the lucky ones who get a call right are then usually
wrong for the next several dozen predictions. We make stars out of folks like
Elaine Garzarelli and the Joe Granville for a lucky coin flip and spent a long
time paying for that mistake. The economic, financial and psychological stews
that are the financial markets are impossible for anyone to predict with any
sustained accuracy.
Big money is made in the stock market by reacting to what
the markets do, not in predicting their future movements. If you look at the
most successful investors they made their biggest returns by buying when
markets were ridiculously undervalued or hopele4ssly overpriced. Investors like
Jon Paulson and Michael Burry didn’t sell subprime mortgages because of a chart
pattern or trading system. They made billions because they correctly recognized
that the securities traded at price will beyond their true value. The markets
went against them for a while but they held on until the process inevitably
corrected themselves.
Investors like Wilber Ross, Warren Buffett and Howard marks
did not get rich by predicting the direction of the stock market. They did it
by buying assets they were egregiously undervalued and held them until the
market entered another euphoric stage and selling them to over excited traders
and investors. They are far more active when the markets are crashing down
around our ears and everyone else was panicking. They bought assets and
earnings cheaply by acting as the buyer of last resort for scared sellers. They
got rich by applying common sense to the markets and waiting for a chance to
react rather than predict.
I have no idea what the market will do in a reaction to a
government shutdown. I do know that the best way to lose some serious coin here
is to try and predict the outcome and the market’s reaction. Common sense tells
me that if the markets react negatively we could sell some bargains created. In
the long term the shutdown has no real impact on the future of my small bank
and cheap stock so I would be foolish to rush to sell.
As investors we need to apply common sense to the markets
and quit chasing impossible pipe dreams. Charlie Munger once attributed his
success to the fact that he acted rationally when other did not. We need to do
the same.
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