Wall Street Institutions pay billions of dollars annually
to convince the investing public that their Economists, Investment
Managers, and Analysts can predict future price movements
in specific company shares and trends in the overall Stock
Market. Such predictions (often presented as “Wethinkisms”
or Model Asset Allocation adjustments) make self-deprecating
investors everywhere scurry about transacting with each new
revelation. “Thou must heed the oracle of Wall Street”…
not to be confused with the one from Omaha, who really does
know something about investing. “These guys know this
stuff so much better than we do” is the rationale of
the fools in the street, and on the hill (sic).
What if its true, and these pinstriped super humans can actually
predict the future, why do you transact the way you do in
response? Why would financial professionals of every shape
and size holler “sell” when prices move lower, and
vice versa? Would this pitch work at the mall? Of course not.
Now lets bring this phenomenon into focus. Hmmm, not one of
these Institutional Gurus ever doubts the basic truth that
both the Market Indices and individual issue prices will continue
to move up and down, forever. So, if we were to slowly construct
a diversified portfolio of value stocks (My short definition:
profitable, dividend paying, NYSE companies.) as they fall
in price, we would be able to take profits during the following
upward cycle… also forever. Hmmm.
Let's pretend for a (foolish) moment that broad market movements
are somewhat predictable. Regardless of the direction, professional
advice will always fuel the perceived operative emotion: greed
or fear! Wall Street's retail representatives (stock brokers),
and the new, internet expert, self-directors, rarely go against
the grain of the consensus opinion…particularly the one
projected to them by their immediate superior/spouse. You
cannot obtain independent thinking from a Wall Street salesperson;
it just doesn't fill up the Beemer. Sorry, but you have to
be able to think for yourself to stay in balance while pedaling
on the Market Cycle. Here's some global advice that you will
not hear on the street of dreams (and don't get all huffy
until you understand what to buy or to sell as well as when
to do so): Sell into rallies. Buy on bad news. Buy slowly;
sell quickly. Always sell too soon. Always buy too soon, incrementally.
Always have a plan. A plan without buying guidelines and selling
targets is not a plan.
Predicting the performance of individual issues is a totally
different ball game that requires an even more powerful crystal
ball and a whole array of semi-legal and completely illegal
relationships that are mostly self serving and useless to
average investors. But, again, let's pretend that a mega million-dollar
salary and industry recognition as a superstar creates Master
of the Universe quality prediction capabilities…I'm sorry.
I just can't even pretend that it’s true! The evidence
against it is just too great, and the dangers of relying on
analytical opinions too real. No one can predict individual
issue price movements legally, consistently, or in a timely
manner. Face up to this: the risk of loss is real; it can
be minimized but not eliminated.
Investing in individual issues has to be done differently,
with rules, guidelines, and judgment. It has to be done unemotionally
and rationally, monitored regularly, and analyzed with performance
evaluation tools that are portfolio specific and without calendar
time restrictions. This is not nearly as difficult as it sounds,
and if you are a “shopper” looking for bargains
elsewhere in your life, you should have no trouble understanding
how it works. Not a rocket scientist? Good, and if you are
at all familiar with the retailing business, even better.
You don’t need any special education evidentiary acronyms
or software programs for stock market success… just common
sense and emotion control.
Wall Street sells products, and spins reality in whatever
manner they feel will produce the best results for those products.
The direction of the market doesn’t matter to them and
it wouldn't to you either if you had a properly constructed
portfolio. If you learn how to deal unemotionally with Wall
Street events, and shun the herd mentality, you will find
yourself in the proper cyclical mode much more often: buying
at lower prices and, as a result, taking profits instead of
losses. Just what if…
Coming next: Developing a Value Stock Watch List and Profit
Taking Targets.
Steve
Selengut
sanserve@aol.com
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor:
The Book that Wall Street Does Not Want YOU to Read",
and "A Millionaire's Secret Investment Strategy"
