The Case for Value Stock Investing... What If?
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 it's 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…
Coming next: Developing a Value Stock Watch List and Profit Taking Targets.
SOURCE:
READBUD
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