Investing In The Stock Market

While a lot of people are afraid of stock market investing today, many people are just now getting started. Whether you are new to investing or have been investing for a while, the stock market still provides one of the best opportunities to create wealth today. The real problem is the fact that we delegate the wealth creation to the so-called “professionals” who continue to use us instead of working for us. You really only have to look at the market’s most recent decline to know that most of them don’t know what they are doing. If they did, they would be a lot more proactive. I personally have family members who lost a fortune and stock brokers did not tell them to lock in their gains. All the while, the market took a nose dive and they lost nearly half of the value of their portfolio.

My question is this. If the professionals are so good at what they do, then how come they don’t tell us to lock in our gains?

The proverbial “buy and hold” stock market investing strategy is a myth and an easy out for Wall Street to never have to tell you when to sell. The simple fact is that all stocks regardless of how good they may appear to be, will eventually come down in value. The stock market is littered with stocks that traded at all time highs and now trade at all time lows. Why is this? Well, a stock’s price is a function of it’s supply and demand. The more demand for a stock, the higher the price and the lower the demand, the lower the price. You’d think that this demand would come from investor’s like you and me. But, our individual purchases are a drop in the bucket compared to where the real demand comes from — big institutional investors. When they decide to take a sizable position in a stock, they invest millions and increase demand for a stock substantially which in turn increases the price. And, when they sell this decreases the demand which in turn decreases the price. This is the key reason that even good stocks go down in value, the demand dries up and moves onto another stock.

When they want to unload their stock they need buyers — because they aren’t buying anymore — so the price doesn’t come down too fast and that’s when you, surprise, surprise, start hearing  about how great the stock is and are encouraged to buy it. This also tells me why your brokers don’t tell you when to sell as well. Who is their bigger customer, you or them? It’s simple economics. The big institutional money doesn’t follow their own advice. They actually pick a time to sell and do it while Wall Street tells you to buy and hold. This is so they can keep the price of particular stocks propped up. If they told you to lock in gains and sell with the big money, then they would be working against their best customers.

So what is a small investor supposed to do?

The first thing I would do if you are like people I knew who lost big money, is fire your broker. They’ve proven they are not up to par. The next thing I would do is start researching two specific investing strategies and pick one that you are most comfortable with and then run with it. The first book I would read is “The Intelligent Investor” by Benjamin Graham. He was a mentor to one of our most famous investors today and that is Warren Buffett. The other strategy I would check into is William O’Neil’s “How To Make Money In Stocks”. O’Neil is famous for being publisher of the Investor’s Business Daily. I personally prefer the CANSLIM strategy over being a value investor.

The thing is that if you want to be successful in the stock market, investing today provides you the opportunity to create wealth you never knew you could. The only thing is that you need to study the market and apply what you learn. No one is going to hand it to you. You are going to have to first pick a strategy and then next start applying it. Will you make mistakes? Yes, but do you think you can do as well as losing half of your money? I don’t have to tell you what I think.