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MOST INVESTORS ARE NOT FACING REALITY
May 03,2007 00:00
by
admin
Most investors have a similar view of the investing scene. They hold the following beliefs: ♦ Buying a diversified basket of stocks and holding them for the long run is the best way to invest. ♦ They can perform better than other investors, because they are smarter than they are. ♦ Buy and hold is the only rational way to invest. ♦ Market timing is for losers. ♦ Dollar-cost averaging is a good strategy. ♦ Financial advisors, brokers, and so-called stock market gurus should be consulted or followed to obtain the best possible investment results. ♦ Tax consequences should always be considered in making investment decisions. Believe it or not, all these beliefs are false! Many intelligent individuals are not intelligent investors. In making their investment decisions, too many investors rely only on fundamental research and totally ignore the technical indicators of stock market investing. Investors must understand that their thinking may not be realistic or accurate and that they cannot be successful as investors by viewing the world through “rose-colored glasses.” Neither should you let tax consequences interfere with sensible stock market strategies. Otherwise you will end up paralyzed and confused, and you will never sell you losers or winners. Of course you can use market-timing strategies without concern in tax deferred retirement accounts because there are no tax consequences in such accounts. But, don’t assume that taking profits in regular accounts, will work against you. It may or may not. But the primary concern is on protecting and preserving your capital and tax considerations are only secondary to your financial well being where the stock market is concerned. You may be intrigued by some of the statements and findings presented in this book. One of the major premises is that buy and hold is a loser’s strategy—that’s right, a loser’s strategy. You won’t see that statement very often in your perusal of the financial news. An entire chapter is devoted to debunking the buy-and-hold crowd. Another critical premise is that the safest way to invest in the stock market is to be “out” of the market in a cash account (or to be short the market), during declining periods, and to be “in” the market only during the most favorable time periods. This completely contradicts what some experts will tell you. You will hear “It’s time in the market that counts, not timing the market.” I will show you that the opposite is true. |