You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -
WHY?
They aren't going anywhere. Some of the stocks that make the headlines every night were leaders of the market 20 years ago. New cycles bring new leaders; this has been proven year in and year out. So many of these TALKING HEADS shout out about "buy and hold" but what are they really holding? They hold old high-flyers that were superstars but have now become fallen stars that sit 20%, 50% or even 90% off of their all-time highs (some may have given you a small return - 10% or less over the past 5 years - WOW - BIG DEAL!). Yes, maybe over 15 or 20 years, you will get your money back - but what is the point? Many of these "so-called" investors tell you how they own XYZ stock and it has returned them 65% BUT they leave out the key factor that it has taken 16 years to get to that point.
One of the strongest and most promising stocks of the early 1900's (1920 decade) was RCA - this stock was one that people claimed you put in your portfolio and hold it till near death - it will NEVER fall and if it does, hold on because it will come back. Well, let's take a look: RCA soared over 1100% during the 1920's and crashed with the rest of the market in the early 1930's. It went from a low 0f $8.70 to a high of $106 to a crash level of $3.00. Some said to hold, some said buy on every dip. - Guess what, it didn't climb back to pre-crash levels until 1963! 30 years to break even for some. Maybe that stock in your portfolio is the RCA of yesterday; history always repeats itself because human nature is always the same!
Stocks are worthy to be held over long periods of time, this is a proven fact but don't EVER hold a stock when it is flashing SELL signals left and right (especially if everyone on TV is telling you to buy now on the dip, "it is a bargain"). These talking heads were saying this about every stock on their computer screen in 2000 and 2001 - "buy the dip". The only dip was the guy on TV and all of the suckers watching him/her. I don't mean to offend anyone but you need to take control of your investing life, you need to learn why stocks go up, why they go down and that NO STOCK is immune to a bear market like the one we just had.
Leaders of the market now, won't be leaders in the future - on some rare occasions, a stock here or there will defy everything and grow decade after decade, but even these stocks end their amazing rise at some point. Same is true for old leaders, they won't lead the markets of today - they become too large and their growth slows, preventing them from being excellent growth stocks and giving you excellent returns. Now - I never said you couldn't own a stock like this, many people are satisfied with these companies, they "feel secure", that is fine; everyone has different goals.
Let the market tell you what is going up or down. Watch "sister stocks", I talk about them in our education section of the website. What do I mean by sister stocks? They are stocks that are in the same industry. When an industry is strong, most of the stocks in this group will rise, hand in hand. (I say most - not all, laggards always stay behind). Fundamentals will be strong for most stocks in the group and technicals will guide you along the trip - think of technicals as a road map.
Once fundamentals have been established, check the charts, if several stocks from a particular group are breaking out of bases, this is a strong sign that something great is about to happen in this group. The more positive the overall market the better the group will perform (bear markets tend to hold down just about everyone). Why buy a stock that has great fundamentals in a weak group? If all other stocks in that group are acting weak, this may be telling you that the "one" bright spot in this group will eventually come back to the pack, so don't chance it. Investing is about lowering your risk! Don't take a risk on a stock that looks good but the industry is hurting.
Buy the leader of a group where several stocks are showing strength. Never buy the cheap stock that is lagging in performance, this is a sure way of losing money - buy the best of the group - the one with the best fundamentals (accelerating earnings, ROE, sales, etc.) and technicals (basing pattern, breakouts on huge volume, relative strength, etc...). What may look high to the general public; usually turns out to be low to the smart professional investor. I am not talking about the "talking heads" on TV - the smart investors work for institutions - they move the market! When they buy, everyone knows because volume jumps to extreme levels or levels not seen in prior months or years. The everyday guy doesn't have this power - ONLY institutions have this power - learn to understand this power, here lies the smart money.
Finally, as I grind this educational information into your subconscious mind, ignore the "Talking Heads" and learn to listen to the market. Price and volume will always give you the best advice.
About the Author
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
You remember (they show it on TV every year) the... Read More
I'll bet with almost anyone that has stocks or mutual... Read More
The Surgeon General of the United States says that smoking... Read More
Buy high and sell low -- It's not a typo.Millions... Read More
There can't be many traders who haven't at least considered... Read More
We keep hearing about this bear market and that the... Read More
Stock investment advice is easy to find. Do you get... Read More
Every broker and financial planner will tell you that you... Read More
The World Bank claims that some two billion of the... Read More
As I have said many times before in this column... Read More
Let's say you are interested in this one company. You... Read More
The bear market that showed up at the end of... Read More
Wall Street's watchword has always been diversification, but what does... Read More
To begin, you might look at playing the stock market... Read More
I continually hear from economists, talking heads, other market letter... Read More
I am taking the time to help others learn the... Read More
It has been said that low cost or even free... Read More
Ever have one of those sample boxes of candy? Each... Read More
The single most expensive stock market trades are those made... Read More
You must take the time once a month to review... Read More
There is no question that the stock market is being... Read More
Before they go over the cliff to their destruction these... Read More
Ever notice how behavior in one area of life can... Read More
The greatest stock market myth is the idea that investing... Read More
Spread trading is a technique that can be used to... Read More
It is difficult to make money in a bull market,... Read More
I love roller coasters. The steeper the better. High and... Read More
As one of my regular readers you know I have... Read More
Three little pigs went to the market to stock up... Read More
The Shadow knows. Remember him? It seems a shadow has... Read More
There are major differences between trading stocks and trading futures.... Read More
When you become interested in a stock or mutual fund... Read More
The Law of Chaos is the theory of random unpredictable... Read More
The spring-loaded rat catcher is the ultimate low-tech device invented... Read More
I often play a little game with myself when I... Read More
Every day I see in the financial section of newspapers... Read More
Every day I hear someone on CNBC proclaim that "this... Read More
'Sector funds are too risky.' 'I doubled my money with... Read More
Why? Because I am going to shatter your conventional wisdom... Read More
Being wrong is OK, but let's not carry it to... Read More
The Bollinger Band theory is designed to depict the volatility... Read More
Every stock market investor faces one primal enemy. An enemy... Read More
1. Do not spread your money too thin.My friend has... Read More
A few years back ? it seems like an eternity... Read More
I don't know what kind it is, but I saw... Read More
Yesterday I received my monthly issue of MONEY magazine. This... Read More
The trash business in its efforts to cook their books... Read More
Have you been listening to the talking heads on CNBC-TV?... Read More
Most advisors will tell you they can beat the market.... Read More
As GuruFocus updates the stock buys and sells of gurus,... Read More
I know there are a lot of you out there... Read More
The single most expensive stock market trades are those made... Read More
Every Wall Street analyst, financial planner and broker will tell... Read More
Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More
You probably have been told that options are risky. Even... Read More
According to Investopedia Inc. the penny stock market has seen... Read More
I use the P/E ratio as a secondary indicator for... Read More
Invest in the stock market for the RIGHT reason, using... Read More
"If you don't know where you are going, any road... Read More
If you're like many investors who squander those small dividend... Read More
This is a guide to the different types of mutual... Read More
For the last 12 years we have seen the Japanese... Read More
The debate rages all over Eastern and Central Europe, in... Read More
If you haven't heard of the technical indicator with the... Read More
Mutual funds and brokers are always preaching not to buy... Read More
Let me start by saying that...Most online brokers do not... Read More
Stocks & Mutual Fund |