The Kamikaze tells you which old sayings make you sound clueless and which ones perk up your investments.
If there is one constant in the investing world, it’s that everyone has an opinion on how to make money. Unfortunately, most of those opinions aren’t worth jack squat. However, if something is repeated often enough, people begin to accept it as truth even if it’s wrong. Let’s tear a few of them apart.
Most investment advice should come with a shovel
The Kamikaze set out to find a man who could cut through all the b.s. clichés frequently heard on Wall Street, in the media and on the Internet. Meet Charles Belida, a market analyst and radio show commentator for K.W. Brown Investments in Boca Raton, Fla. Belida is the sort of in-your-face guy who’s not afraid to call someone a phony no matter how much money they’ve made in the stock market. Here, he discusses some of the most popular clichés heard around investing circles.
“That’s like telling someone to be a good boy,” he says. “What the hell does ‘good’ mean? Telling investors that nonsense is what brokers do to fondle the emotions of their clients. I would rather buy high and sell higher.”
Don’t invest in anything you don’t understand
Investment guru Peter Lynch popularized this phrase. It sounds like common sense, but it actually overestimates the information necessary to make a wise investment decision. While Belida agrees that it would make sense for some people to invest in stocks with which they are familiar (i.e., a doctor who buys stock in a drug company), he believes that the majority of shareholders don’t understand their company’s products, nor do they need to.
“If everyone needed to understand a company’s product in order to buy a stock, then half the people would be out of the stock market,” he says. “You think people know what Microsoft does? What Cisco does? What Intel does? What Lucent does? The average guy may know something about retail because he buys some of those products himself. But that’s anecdotal evidence, not research evidence. The average guy doesn’t know his ass from his elbow.”
Develop a system and stick with it
This cliché is based on the faulty premise that whatever’s worked in the past will always work. Every year a new book or magazine promises to reveal some big shot’s secrets for knowing when to buy or sell a stock. Keep in mind that these so-called secrets are all meant to sell a product or promote an article.
“There is no such thing as a perfect system,” Belida says. “What works now won’t work next year, but it will come back again in 10 years. If there was a perfect system, then no one would give it out because then everybody would know about it. Imagine if I had the perfect investing formula, and investors did exactly what I told them to do. If everybody did what they were told, then the market wouldn’t move. If I told everybody to sell, then who would buy?”
The message so far has been to forget the clichés and focus on stock analysis. Of course, you should always worry about a stock’s trading volume and earnings. And Belida says there are three other major elements that you’ve got to analyze as an investor:
Conditions in the United States. Know what the Federal Reserve is doing and what effects it might have on the market. The rise and fall of interest rates will always impact you one way or another.
Political decisions and stability in the world. Find out how events like the Asian and Russian financial crises might affect your stocks. Also, if there is a war or some other major political event, keep careful track of the way Wall Street responds.
Opinion regarding the stock market. Stop listening to advice from analysts, economists, investors and writers (yes, the Kamikaze is a writer). Belida explains that no matter what lame-brained idea you have about a stock, you’ll find an idiot somewhere that agrees with you. Instead, pay close attention to the market conditions, and they’ll tell you much more than any “talking head.”
“There’s only one opinion that you should be paying attention to, and that is the opinion on the stock exchange itself,” adds Belida. “What is the market doing?”
The lesson is clear. You’ve got to do your homework instead of just relying on someone else’s words of wisdom. Remember that even the greatest minds in the world couldn’t see the stock market crash coming in 1929. Don’t put all your trust in people or clichés, and maybe someday you’ll write a book explaining how you made a fortune in the stock market.