The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do. – Warren Buffett, who became a billionaire through stock market investing
I remember way back in August 2012 I read an article in a broadsheet about someone asking for advice whether to invest in speculative stocks or not. She was envious that her friends are making money doing so.
If given the chance to give her advice, it would be short. I’ll say don’t do it. Don’t be in a hurry to be rich; plus, speculative stocks are in a dangerous territory. I’ll state my reasons though below.
I also remember a news many years ago about an investor claiming to earn P20,000 (AUD$546) weekly from trading. Back then I said to myself, I would like to be in the stock market too. But upon knowing and experiencing the market, I doubted the news. It’s not easy in this arena.
In fact, many people in the market lose money because they follow the follower. What do I mean?
The herd mentality
Most of us in the stock market belong to the crowd. Many yield to herd mentality. We most of the time listen and follow the trend: we buy when stocks are rising and sell when they are diving.
I remember a documentary about a herd of buffalos crossing a dangerous water where crocs are waiting. Any buffalo who by chance becomes at the front of the pack turns out eventually to be a leader to follow. Even if that buffalo is leading them to a more dangerous water, others will blindly go along.
Whenever I go to the office of my broker I hear people talking about things related to technical analysis. Outside the office and in social media forums, many mention about rumors and tips. These kinds of strategy dominate the market.
The funny thing is, people listen to them treating them as the best way to make money. They do so even if they are based on rumors and non-business-performance analysis. They mind the price more than the value of the business.
You will actually have a subpar performance in the stock market if you keep doing so. I read a statistics revealing that those who did not listen to stock market “experts” and just kept their money in good companies performed better than those who listened to experts to trade.
Many of us are like that. I can say that many actually don’t know what they’re doing in the market. They simply take the advice of those who are taking advantage of them.
Do you have the stomach to go against the crowd? You have a good chance of making a good profit if you have.
Know who you listen to
You won’t make money if you follow the market. If you are just following, you are literally behind right?
Don’t be in a position where traders and speculators are taking advantage of you. Some of them even tell you to buy certain stocks so that they could sell their position and thus making a profit for themselves.
I watched a documentary about the scandal of Enron in the US. Investors are duped to buy Enron’s stocks but its executives are at the same time selling theirs. This is happening in the US, and I believe in the Philippines too.
Moreover, if the forecasts of economists and market analysts are accurate, I have yet to see their own names in the top richest people in the country. What I see on the list are rather those who continue to make their businesses profitable whether the economy slumps or soars.
Know your broker or your financial advisor well. Know if he is a salesman or investor-friendly. Choose those who advice you for your own financial welfare and not at your expense.
I listen to those who have proven themselves successful in the market. I listen to Warren Buffett, I listen to other great value investors. You can read books about them, or you can consult Mr. Youtube.
Going against the crowd
Foolishness in the market will cost you money, sometimes even a lot of money. Those who do not know what they do are doomed to lose their money. Their money disappears like a bursting bubble; it goes to the hands of intelligent investors (though some to cons).
If you happen to watch or hear news about massive loss of money in stock market, know that it’s just a wealth transfer. When the market is reaching new highs, many traders are buying more. While they are doing so, many value investors are starting to sell.
When the market starts to spiral down, traders make a move as fast as they can to sell, even if it’s selling at a loss. You rather take advantage of the shortsightedness and folly of these people.
Do the opposite of what these traders do. Sell when they are buying; buy when they are selling. I know only a few practice this kind of investing.
Be reminded however that you are going against the crowd not for the sake of going against the crowd. You are doing it because you know the business behind the stock.
Let me leave you with a quote from Ben Graham, the mentor or Warren Buffett:
The one principle that applies to nearly all these so-called “technical approaches” is that one should buy because a stock or the market has gone up and one should sell because it has declined. . . In our 50 years, we have not known a single person who has consistently or lastingly made money by thus “following the market.”
*The title of my article is taken from one of Les Brown’s motivational talks.
