You dont have to look too hard to find investment advice anymore. Pick
any medium you want - youre sure to find someone telling you precisely
how to turn your one dime into two. Most are free sources, while some
are for pay. None are perfect, and all of them are sometimes wrong. No,
theres certainly not a lack of advice.
That, however, can be a
problem, especially for a new investor. On the other hand, veteran
investors are just as subject to the same risk of information overload.
Just look around you. Bookshelves and libraries are crammed with what
seems like more than a lifetimes worth of how to. Throw in the daily
financial newspapers and the monthly publications, and you dont get
directionyou get a mess. The secret to success in the investing world,
then, is keeping it simple - a task easier said than done.
The
last thing you want to read here is a diversification sermon, or the
buy low P/Es rhetoric. If you havent already, you can pick that stuff
up at anytime at your local bookstore, or on the internet. Instead,
lets really focus on the key realities any investor should keep in mind
before they actually invest one red cent in the stock market. Odds are,
these are ideas and lessons youre not going to hear anywhere else.
Thats oktheyre still true, and still important.
Three Out Of Four Stocks Move In The Same Direction As The Market
Its
true3/4 of publicly-traded companies generally move as a single unit,
while the other fourth isnt correlated with the market. However, its
not a static fourthevery stock will eventually move with as well as
against the overall market tide. Some may move more than others, but
for the most part, you can expect to see returns pretty close to what
the market yields.
The implication - especially for new
investors - is exactly what you think it would beyou have to get the
market right first. If you own the best stock in a bear market, then
you still own a bad stock (or own it at a bad time), and are probably
going to lose money. As such, when the market is in a downtrend, the
best decision is in not owning stocks unless you are absolutely certain
the ones you own are the same ones currently disconnected with other
stocks.
Flies right in the face of buy-and-hold, doesnt it?
Buy-and-hold is a relic, materializing as a philosophy in the 70s and
80s. The timing was the pitfallin the 70s and 80s, and especially in
the 90s when stock ownership became commonplace. In that sort of
multi-decade bull market, sure, buy-and-hold makes sense. However,
there was no philosophy or preparation for what we saw in the early
2000s. We hadnt seen anything that bad since the late 60s and early
70s, and nobody really thought it could happen again. It did. And, it
could happen yet again in the foreseeable future.
The
implication is just a dose of reality. The market can and does fall,
sometimes for months at a time.
