discussions on the ever-upward trend of the market, and therefore
of individual stocks within it. Now we touch on a few other gripes that we
have with much of the advice often proffered by investment experts’ writings.
There is certainly plenty of advice out there for the Average Joe who
is looking for the best way to use his savings in order to make money from
investing. With all of the many and varied “how-to” books, each containing
its own sometimes bewildering, often contradictory advice on investing
and trading styles and systems; it is no wonder that most readers either
throw their hands up in horror or end up more confused after reading them
than before they opened up the cover. Despite the intention of each writer
to contribute something new to the genre, interestingly, there are a number
of common themes within investment literature that are written about
ad nauseam. On closer inspection, these themes seem to provide unnecessary
complication or even misinformation and propagation of myth to the
investing advice mix.
Many investment writers stress timing. For some reason, many of them
suffer from a strange obsession with market tops and bottoms, particularly
the beginnings and ends of bull and bear markets. As will be seen from
last article, this is an obsession that appears to have its foundation in Dow
Theory, an investing strategy with a long pedigree that has influenced the
thought and actions of investors and traders alike for over a century, and is
the forerunner of technical analysis. It has to be understood, however, that
bull and bear markets represent shifts in sentiment that happen only every
few years or so. The length of time that the entire bull/bear cycle runs may
take many years, possibly up to a decade or more. Yet such writers whose
focus is on spotting these tops and bottoms will happily expend an acre or
so of the Amazon rainforest explaining how to recognize the signs that a
market bottom or top has been reached. There were dozens of books published
just in the past two decades alone, and a handful published as far
back as the 1960s, on market timing. Many of them simply review different
theories about how markets are timed and invite the reader to choose his
or her favored approach as, for example, the introductory work, Complete
Idiot’s Guide to Market Timing. Others, however, believe they discovered
the market timing philosopher’s stone and try to instruct their readers in
how to time the market’s up and down cycles. The scenario is usually as
follows. When the point has finally been reached where the market has
reached a bottom, they instruct the investor to make an insightful purchase
at precisely the “right” price level. Then, these writers advise that
the intrepid investor must scrutinize closely for similarly clear signs that a
market top has been reached. Again, the investor must time everything just
right, thus achieving the goal of cashing out at precisely the moment when
investment earnings are maximized.
It is a feat of almost impossible brilliance for anyone to succeed in
spotting exactly when the market has hit the bottom or top. Unfortunately,
neither the professional nor the lay investor has a crystal ball to tell
when the market is at its high or low. Neither does a bell ring at that
point. Moreover, what is an investor to do if he missed the opportunity
provided by a market low? Does he now wait several years or decades until
the market again reaches a secular low and presents him with another
appropriate buy signal?
Even when market pundits are not trying to accomplish something as
ambitious as identifying a market top or bottom, many do claim that they
are able to spot an individual stock’s top or bottom. This is where the technical
analysts enter into the picture with their various charts and symbols
like dogi stars, shaven heads, hammers, and hanging men. They attempt
to interpret all kinds of bizarrely named patterns that can be read from
charts illustrating past stock movements in an attempt to predict what their
next directional move will be. Here is an excerpt from Toni Turner’s A
Beginner’s Guide to Day Trading Online: “If the next candlestick after
the Evening Dogi Star is a white real body, the Dogi warning is negated.”
Hmmm.
There most certainly is no shortage out there of those who claim
that they have all the answers. Even when they are not promising to
teach others how to interpret the signs, there are those who promise
that they can provide the tools necessary to achieve success. (California
Gold Rush syndrome again perhaps?) There are dozens of Web sites that
lure the investor/trader with promises that their fortunetelling market
experts can signal the precise moment when the investor should buy
or sell stocks, mutual funds, or bonds if the investor is unable to do it
himself. Some promise that they can pinpoint and help the investor avoid
any approaching market crashes. It must be noted that all these sites
charge subscription fees of varying fatness. We have also noted a revival
in investing seminars, advertised through infomercials on late night TV,
that promise to provide insights and tools for successful stock trading
and indicating that those who sign up can be on the road to “financial
independence.” The latter is typically illustrated in the infomercials by a
big house and pool in a sunbelt setting, a big car and lots of time to play
golf or for other leisure time activities. The implication is clear. “Financial
independence” means getting rich without having to work.
Read More : Investing Myths Debunked
