Yesterday, I bought a Nikon D80 Digital SLR from Amazon and ever since that time, the stock market kept going up! I mean, it’s been up around 3% already, so it must mean that buying cameras (especially ones from Nikon) lifts the market!
As ridiculous as the above advice is, so are most of the other so called “expert” advice when it comes to investing. These advices only seem to make sense because it doesn’t contradict with the little that we know (something we call “common sense”) about this subject. We hear experts after experts tell us to buy, buy and buy more stocks when the DOW was at 14,000. Then when the market is at 9,000, we hear less than half of the same people still telling us to buy.
If we really sit down to think about all the investing advice we hear, we will realize that most of them represent a whole lot of crap. Who doesn’t know these days that we are in a tough economic environment? What we really needed to be told was that this will happen 12 months ago, not when it’s actually too late. Stop telling me what’s obvious, because all this does is remind me of how incompetent all the experts are. It proves to me that while it’s nice to hear what the experts think and know what’s happening in the economy, it does not help me make money in the stock market.
Relying on what’s on the news to buy and sell stocks is really about trying to time the market. In the short term, stock prices are based on emotions and not facts. Therefore, trying to guess the mood of every potential buyer or seller is really a better tactic than trying to figure out the facts. The stock market did not tumble recently because of the economic crisis or the probable recession. Stocks fell because there are way too many sellers than buyers.
You can argue that people are selling because of all the bad news, but this is only part of the reason. Stock prices represent the last time a transaction happened. If no one is selling, there will be no transactions and prices won’t go down.
Understanding this is also part of the reason why I invest regularly, whether it’s the good times or bad. This way, I’m buying when it’s going up, and buying when it’s going down. I know that the general trend of stocks go up, and this is the only thing I’m willing to bet on.
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