It’s amazing what fuels the stock market, whether its rumor, innuendo, earnings reports or scandal, something is always causing investors to react. The Big Funds move based on theories, individual investors react to those same theories and the movements of the big boys. There are hundreds of competing motives that all combine in this wonderful dance called the Market.
Investors believe in lies for several reasons, the most important being that they are told to believe them. Let’s poke a few holes in those lies.
Stocks are Worth the Price they are Quoted.
Have you ever heard the phrase “The Rich Create Money?” Stock prices are a prime example of created money, or money as an idea. When E-Bay ™ went public, the price moved from $85 to $115 in a matter of days. What made the stock worth $30 more after only 72 hours? Perceived value.
Diversification is a Good Investment Strategy.
Should you put all of your eggs in one basket? Ask Warren Buffett and take a glance at Berkshire Hathaway’s holdings. The old adage, “buy what you know” applies here. Diversify with companies you do business with. Buy gas at Exxon? There’s your oil stock. Who gets your electric bill payment every month? There’s your energy stock. Each time you make a bill payment or purchase, you are contributing to stock you own. How much you choose to diversify is always a great question, and should be based on your individual goals. If you can take a long term trading view, higher risk companies can get a higher allocation of your stock investment. If you need to preserve capital, then stick with blue chips. Especially in this market when value is so easy to find. What is a good mix before you spread yourself too thin?
Hot Sectors are the Place to Be!
Once everyone discovers a stock, why would you want to buy it after other investors have run the price up? Even worse, today’s HOT is tomorrow’s NOT. Do you want to get burned by collapsing prices if you discover too late that you are no longer the flavor of the day?
You Should Buy a Stock When an Analyst Says So.
How many expert talking heads can you listen to in one week to discover who’s picking what? More importantly, why are they picking that stock? People love the sound of their own voice and analysts are the worst. Ignore them.
If The Stock Market Fluctuates 50 Points Should I Care?
Not if you’ve done your homework, or better yet, listened to a trusted advisor. If you have, then market fluctuations won’t affect your portfolio. For the more advanced investors, anticipating market conditions can even add value to your portfolio.
Average Investors have to recognize these 5 lies and how to avoid their repercussions. The best way to avoid their impact on your portfolio is to become a better than average investor. How do you become a better than average investor and recognize the lies we are taught to believe? Find a trusted advisor and listen to their advice.
