Stock Market Insanity

Let's first define insanity. It is doing the same thing over and over and expecting a different result. And that is what most investors do and they can't understand why they are not able to make money in the stock market.

Do these investors need a psychiatrist, a psychologist, a talk with their minister or none of the above? I know, you think they should talk to their broker or their financial planner. Believe me, folks, these two are part of the problem and not the solution.

If they knew the answers everyone would be rich. Let's go back and look at who taught these mavens how to invest. The Wall Street brokerage houses taught them or rather did not teach them the most basic rules of the game. Why? Because brokerage houses want you to buy (for commission) and they do not want you to sell even though that means another commission. There are two basic reasons they don't want you to sell and it has nothing to do with that one selling commission.

If you sell you might take your money out of your account and that is one of the things the Maul Street crowd never wants to happen, but the most important is they make money when your account is invested. It is not a lot, but it in a nice steady 1% or more. You are their unspoken collateral in the worldwide money shuffle.

Any broker who suggests a customer sell is usually chastised in some way or just plain fired. A broker who allows large sums of cash to accumulate in customers accounts is told to invest (?) it or hit the road. The house (that's the brokerage firm) does not want to see customers with big cash balances although there are times when that is exactly where they should be. Remember 2000 to 2003? During that three year period wouldn't it have been better for your account to have had no stock or fund positions?

Brokers or financial planners are not taught simple methods to protect customer funds. And I mean simple. Too many folks during the 2000 debacle lost 40% of their money and more. There was absolutely no reason for this if basic money management techniques were instituted.

Customers could be made aware that they should not give back more than 10%, maybe as much as 15%, of their portfolio value when the stock market goes in the tank. That occurs on a regular basis. Declines in equities of 20% to 40% happen regularly and no customer should be mesmerized into holding during those periods.

During the 2000-2001 period there were less than 3% recommendations by brokers to sell and those sells were after the stock had crashed about 80% to 90%. It is too late then. Your money is gone. If brokers and financial planners had been taught to advise people to place 10% stop loss orders their retirement accounts they would be much fatter today.

Stop doing the same thing over and over again because of bad advice. Learn to sell when your position goes negative. Don't be one of the insane.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

[email protected]; 1-888-345-7870

In The News:

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How do mutual funds help you to invest better?  Moneycontrol.comMutual funds can provide you products that can meet your financial goals with relatively lesser risk.
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Top fund houses are busy lapping up PSUs; what’s behind this new-found love  Economic TimesNEW DELHI: India's top three mutual funds, which manage over Rs 9 lakh crore in debt and equity assets, added a number of PSU stocks to their schemes in ...
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Fund managers' picks: Large, mid & smallcap stocks that MFs bought, sold in Dec  Moneycontrol.comMF assets declined to Rs 22.8 lakh crore in December 2018 from Rs 23.4 lakh core in Nov 2018 on the back of moderation in the flows in equity funds and ...
Five stocks that mutual funds think can outperform  Economic TimesA volatile month gave fund managers a chance to cherry-pick stocks.
Mutual fund holdings in IT stocks touch all-time high  Economic TimesMumbai: Fund managers are betting big on the IT sector, on the back of an improving global macro environment, depreciating rupee and rise in IT spends.
Mutual fund lesson: What should you do in volatile markets?  Moneycontrol.comCost of investing in equities is that it is a volatile asset class- there will be times when your portfolio value will be lower than what you invested.
Investing in equity mutual funds versus investing in shares: Which is better?  Economic TimesThe final goal for all stock investors is the same: to get superior returns. However, in terms of what you do, there are two completely different routes.
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Is it time to invest in mid cap and small cap mutual fund schemes?  Economic TimesMany market pundits believe this is the right time to enter in small cap and mid cap segments.
10 small equity mutual funds that have given very good risk-adjusted returns  Economic TimesMany small-sized funds have delivered handsome risk-adjusted returns. Find out why you should not ignore them.
See how they play market crash! MFs sold other stocks to lap up these 21 in October mayhem  Economic TimesPopular beaten-down stocks attracted big money from institutional investors on Dalal Street in October, when the domestic equity market was facing severe ...
Fund managers raised stake in 194 stocks in Dec quarter. Is it a good idea to follow them?  Moneycontrol.comif good or quality stocks are getting hampered with external factors, investors should use the dips to buy into stocks which they think hold long term growth ...
New to stocks? Try aggressive hybrid funds: Dhirendra Kumar  Economic TimesThe promise of a small cap is that they turn out to be a bonanza when they become a midcap or large cap, says Dhirendra Kumar, CEO, Value Research.
MFs waiting for a fall to buy stocks increase exposure to Nifty futures  Economic TimesFund managers of some large- and multi-cap schemes have been buying the Nifty futures in a bid to boost returns. A look at the factsheets of large fund houses ...
Why your mutual fund earned you less than Nifty in recent market rally  Economic TimesThe more the number of stocks in an index, the weaker is its performance.
Mutual funds garner Rs 7,985 crore via SIPs in November  Economic TimesNEW DELHI: Retail investors continued to pour money in mutual fundS through systematic investment plans (SIPs) as the industry received Rs 7,985 crore via ...
Do not make these 7 mistakes while investing in mutual funds  Moneycontrol.comNever forget that you are investing because you have to achieve your financial goals. Investing without a goal is akin to travelling without a destination.

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