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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…
Steve Selengut
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