The investor always reads the business section of the paper first, turning to the stock tables to
see how his life is doing. Or he checks them out using his computer. This sets his mood for the
day. If his stocks are up, everything is beautiful and off to work he goes with a big smile. He
says proudly "I picked that stock!"
But if his stocks are down, we've got Mr. Grumpy for the rest of the day. He's telling himself:
"I shouldn't have bought that one" or "I should have sold it when it was up -
taken my profit" or "why did I listen to my broker/friend/barber/that taxi
driver" or "XYZ is up $4.00 today. I should have bought it. I knew it!"
Then he turns on the radio and hears that the Dow is down 80 points. He shouts
"darn". I have a theory that this is the chief cause of road rage.
Here are a few more real-life quotes from stock market investors:
"I shouldn't have sold that one. I knew I should have bought some more when it was cheap.
Look at what it's up to now. I should have hung on to it. I knew it was going back up. I knew it!"
"It went up just because I didn't buy it" or "just because I sold it."
"If I sell it, it'll go up. If I buy it, it'll go down. It's like the market's watching me."
"I'd grab the remote, flip on CNBC and watch the ticker roll across the bottom of the TV
screen, woooeee! I could watch it for hours."
Most investors become addicted to the market. It becomes an obsession. It's all they want to talk
about and pursue.
And so far, we've just been describing the casual investor. Pity the poor "day trader"
whose computer screen is flashing new stock prices every second. He tries to time his buying and
selling to take advantage of small price moves throughout the day. A United States Senate
investigation committee found that 3 out of 4 day traders lose all their money.
Since the day trader usually buys too soon and sells too late, he watches his $100,000 nest-egg
dwindle to nothing as the broker takes his commission every time the trader buys or sells
something. Day traders buy Maalox by the case.
I guess stock market traders fail to understand this simple principle: when you jump in and buy a
stock, it will do only one of two things
- The price will go up
- The price will go down (it never stays exactly the same)
And you have absolutely no control over, or reasonable way to predict, which way the price will go!
Are you thinking "After reading the last page, I don't think stocks are for me. Aren't there
any easy, sure-fire investments?"
Sure. Most of us are familiar with the traditional EE savings bonds, but the new iBONDS, first
offered in 1998, are a whole lot better. All earnings grow tax-deferred. You never earn less than a
guaranteed base rate, currently 2%. Now paying 4.4% a year, iBONDS are adjusted periodically for
the rise and fall of inflation. I will repeat, if inflation goes up, your interest rate goes up too!
But you're not reading this book to learn about boring savings bonds. I really hope that you are a
little more adventurous and have a bit more risk tolerance than the typical savings bond investor.
Mutual funds should be your core investments. Properly chosen, they can be safe and a sure thing.
But before we explore mutual funds, we'll continue with stock market trading. But I give you fair
warning, If You Already Have Enough Stress In Your Life, Your Investment Solution Is Mutual
Funds, not individual stocks.
I'll give you some more reasons to stay away from individual stocks. Don't get me wrong. I am an
experienced stock trader, and you too can make tons of money if you follow the investing rules that
I will explain to you. But do you have the stomach to suffer occasional, discouraging losses?
When you begin buying and selling stock, you may find yourself on the greed-fear roller coaster,
greed when things are going well, and fear when the market is tumbling. Hope and despair are also
part of this cycle. It causes your judgment to become clouded as your emotions take over.
Other Stock Market Basics Topics:
Stock Market Investing – the Right Way
- More Stock Marketing Investing
- How to Pick Winning Stocks
- The Golden Rule of Investing
- Avoid Psychological Traps to Have Successful Investing
- Changes in Stock Values Can Be Big Numbers
- How to Invest Smart
- Stock Advice - Important Selling Rules
- Poor Stock Buying Decisions
- Market Indicators
- Stock Market Cycles
- When a bear stock market may not be a bear market
- Stock Index Futures
- Four Things that Affect Stock Valuation
- What is a P/E ratio?
- Value Investing
- Cheap Stocks
- What is a Financial Statement?
- Analyzing Financial Statements
- Stock Market Tip - Red Flags to Look For When Investing?
- The Annual Report – How to Read
- Stock Market Analysts – Stock Market Advice and Tips
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