 |
Beating the Stock MarketPosted by securities on: 2006-04-24 09:37:00
Beating the Stock Market By William Cate Most investment strategies don't work. After taxes and inflation, conservative investment strategies don't work. Long-term investing in stocks is a loser because the potential yield is far less than the risk of loss of your risk capital. Consider the odds of a junior resource company actually finding a gold mine. If you pick the right public company, you could make five or ten times your investment. However, the odds that your company will find a commercial gold deposit are about one-in-two thousand. Let's assume you invest a dollar in each of two thousand junior resource companies. One of your dollar investments yields ten dollars. The other 1,999 are losers. Your net loss is $1,990. Stock investors can't beat these odds. I know that your local library has a shelf of books on how to beat the stock market. It's a popular topic in fiction. The authors tout all kinds of methods and formulas that might have worked for them. Some writers recommend buying stocks with low price/earnings ratios or buying stocks with high price or earnings momentum. Some authors suggest buying Over-the-Counter shares, others recommend buying New York Stock Exchange shares and still others recommend buying shares that trade on regional stock exchanges. There are books on sector trading, like technology stocks. There are scores of books on technical analysis, which is financial astrology. There are a few books on how to use the alignment of stars and planets to pick stocks. The most popular stock investment strategy in the world is fundamental analysis. Good fundamentals are vital to the survival of the public company, but they usually have little to do with the public company's share price performance. Market Gurus are part of the myth that you can invest in stocks and profit. They come and go with regularity. They usually begin with a streak of winning market calls. The 1970s Gold Bug Gurus are a good example of a stopped clock being right and then everyone believing that it would be right on a regularly basis. Eventually, he or she becomes a media figure who is widely renowned as a market guru. A percentage of the public believes every word that hits the news wires. Some gurus are capable of moving the markets single-handedly. Such movement is usually very short lived. Eventually, most of these market gurus run into a string of bad market calls. The Gold Bull Market ended in 1981 and the Gold Market Gurus that rose with it slowly faded during the 1980s. Studies have shown that, on average, investing your money with a mutual fund that has been a great performer in the past is no more profitable than investing in a mutual fund that has only had average performance in the past. Historical studies show that only about 15% of mutual fund managers are able to beat the S&P 500 stock index in any given year. This means that 5 out of 6 of these managers are not able to buy and sell stocks for their mutual fund portfolios that beat a basket of average stocks. Fund managers are well educated, well read and well informed about world events and the economy. They follow the market. There is a tendency toward a herd mentality among them. They tend to buy and sell the same stocks. They are influenced by public perceptions of what companies performed will in the past quarter. But, the fund manger's poor performance can't be simply explained by lemmings rushing toward a cliff at slightly different speeds. And, fund managers outperform newsletter gurus, where about one newsletter editor in twenty outperforms the S&P 500. Why can't fund managers, newsletter editors and other professional investors beat the market? In part the answer is that investing in anything in a volatile economy doesn't work. It's a fact that investor risk their money on perception and not facts. It's a fact that the Stock Market is manipulated. And, if a particular stock investing method has worked for some time and a book or article is written about it, chances are that it will soon cease to be profitable as more and more people try to buy and sell the same stocks at the same time. And, the public perception of the Market changes. The Stock Market redistributes wealth from the many to the few. Your job is to be among the few. There are two consistently profitable Stock Market Strategies: 1. Sell short carefully selected stocks. 2. Hold less than 5% of a company's insider shares and legally sell those shares into the Market as quickly as possible. Both of these Stock Market axioms have worked for the past quarter century. I could write a book on the details of making them consistently produce profits. Unfortunately, if I did so, they may no longer work. The money is in using these Stock Market tools and not writing a book about them. If you want to beat the Stock Market, you might consider joining the Global Village Investment Club. [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/] About the author: He is the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/]. He's the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/] He's a Venture Capital & Equity Finance Consultant [http://home.earthlink.net/~beowulfinvestments/williamcateventure capitalampequityfinanceconsultant/] |
|
Post new CommentThis site does not allow anonymous comments. Registered members can login to participate. Registration is free and takes only a few seconds |
|