Pages

24 February 2010

The Case for Value Stock Investing...What If

Wall Street Institutions pay billions of dollars each year to convince the public that investing their Economists, Investment Managers can, and analysts 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) makes self-deprecating investors everywhere slip about acting with each new revelation. 'You must heed the oracle of Wall Street "... not to be confused with the one from Omaha, who really knows anything about investing. "These guys know it here so much better than we do", is the basis of idiots on the street, and on the hill (sic).

What if its true, and these pinstriped super humans can actually predict the future, why would you act 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 you can bring this phenomenon into focus. Hmmm, not one of these institutional gurus ever doubt the basic truth that both market indices and individual issue prices will continue to move up and down forever. So if we were slowly building a diversified portfolio of value stocks as they fall in price, we would be able to take profits during the next upward cycle ... also forever. Hmmm.

Let's pretend that a (stupid) moment that broad market movements are somewhat predictable. Whichever direction, professional advice will always fuel the operative emotion: greed or fear! Wall Street's retail representatives (stockbrokers), and the new Internet expert self-managers, rarely goes against the grain of the consensus opinion ... particularly the one projected to them by their immediate superior (or spouse). You can not separate thinking from Wall Street sells, it just does not fill Beem. Sorry, but you have to be able to think for themselves 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 do not get all huffy until you understand what to buy or sell and when to do it): Sell the rallies. Purchase of bad news. Buy slowly; sell quickly. Always sell too soon. Always buy too soon, incrementally. Always have a plan. A plan without purchasing guidelines and goals do not sell a plane.

Predicting the performance of individual issues is a completely different ballgame, requiring an even more powerful crystal ball and a series of semi-legal and completely irregular situation who 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 the Master of the Universe quality prediction capabilities ... We're sorry. We just can not even pretend that it's true! Evidence against it is simply too great, and the danger of relying on analytical statements for real. Nobody can predict individual issue price legally, consistently, or in time.

Investing in individual issues to be done differently, with rules, guidelines, and judgments. It must be done unemotionally and rationally, monitored regularly, and analyzed with performance evaluation tools that are specific portfolio, and calendar without time restrictions. This is not nearly as difficult as it sounds, and if you are a "shopper" looking for bargains elsewhere, you should have no trouble understanding how it works. Not a rocket scientist? Well, if you're at all familiar with the retail business even better. You do not need any special training evidence abbreviations or software for stock market success ... just common sense and emotion control.

Wall Street sells products and spins reality in whatever manner they believe will produce the best results for these products. The direction of the market means nothing to them and would not want you either if you had a properly constructed portfolio. If you learn to handle unemotionally with Wall Street events, and cloud herd mentality, you will find yourself in the correct cyclic mode far more often: buy at lower prices and, as a result, the profits instead of losses. Just what if ...

No comments: