I had the opportunity to hear an interview on NPR the other day with the author of a recently published book, The Myth of a Rational Market. Apparently there is a theory or concept out there in the investing world that says the stock market is smart enough to actually correct itself. In some ways I can sort comprehend how that could have been believed at one time. But how can the market have any sort of rationality ever since the time that investing in stocks was made readily available to the general public through online investing companies like Schwab and Ameritrade? In years past, stock recommendations and purchases were made by schooled investors who all likely learned the same concepts and principles, thereby making the market a much more predictable animal. But the psychology of investing today is much different.
Back in the late '80s and early '90s, I, along with many other folks, jumped on the online personal investing band wagon. We placed our uneducated bets on stocks that showed promise-cures for cancer, solar powered batteries, alternative fuels, windows and mirrors that automatically dim themselves based on the strength of the sun ... . At least we thought the stocks showed promise. Maybe they did, but maybe we got impatient and looked for more risky, quicker ways to make and lose money.
Part of why the stock market is different today lies within the mentality of the nonprofessional investor. Many investors today are short term traders who are not necessarily investment experts working toward long-term retirement savings or buying huge chunks of shares. We're buying little bits of shares, depending on what currently appears to be happening in the market every time we have a bit more money to risk losing.
That's what makes small cap stocks so attractive and volatile. A little news spikes a stock so we ride it up and sell. Or we start to ride it down by accident and sell it even quicker. There is a whole group of investors out there who are not paying any attention to the traditional buy and sell indicators, regardless of the tried and true schools of thought.
Understanding the psychology of the stock market is imperative if you want to make a buck.
What bothers me most about being one of those so-called uneducated investors is the sell-offs that occur. Of course, everyone has their own agenda, but if you want the stock to go up, don't start selling off thousands of shares, which starts or contributes to a sell-off, just because you've made your 15 or 20 percent. In fact, after you've made your 15 or 20 percent, buy a little more of the stock. Even though many investors recommend setting a goal, say 15 percent, and then selling (in an effort to keep your emotions out of the equation), what if you bought more of the stock? Your cost average would go up a tiny bit, but so what? Buy more and support the fact that the stock is trading higher. That way, you contribute to confidence in the stock price going even higher, and more people will buy. Of course, that only works if everyone goes by the same strategy, and of course they don't. It would all work out fine if we were all a little more educated about the psychology of the stock market and made it work for us.
Things to take into consideration when you're doing your own trades:
Maintenance fees that investment companies charge generally aren't worth the money.
Ameritrade doesn't charge maintenance fees and does pay interest on money that is in your account but is not invested.
Ameritrade doesn't require a minimum balance, but many online investing companies do.
Beware of investment companies that say they only charge $4.99 per trade-the trades that cost that little are usually repeat planned purchases of the same company's shares.
Don't expect any stock to act--in any way--rationally. Stock prices don't follow the old school rules or any "be the change you want to see" rules.
Even long-term slow growth stocks take a major hit when serious, bad, political events happen.
Account for cyclical trends, like slight sell offs before Christmas and slow summers.
Watch what happens before, during, and after announcements of earnings, new products, and other news that the company reports.
Learn how to use the stop loss settings for your online investing account.
Don't put money into the stock market that you can't afford to lose, unless you seriously know what you're doing.
penny stock promoters in new york
No comments:
Post a Comment