Fernando MonteiroDo You Try to Read the Market?
July 20th 2009 13:11
Do you get carried over reading the market wrap on the newspaper everyday? Do you listen with much attention every night the market report on TV? If you do, you have at least one interesting belief about investing in the stock market, which is that you can only make money when the market goes up and, conversely, that you can only lose money when it goes down. Therefore your obsession with it. But is that really the only way to invest and make money? Let’s see.
Do you realise that when you invest in lockstep with the rest of the market something unavoidable happens, which is that you then tend to buy high and when prices are going up, and that you also tend to sell low and when prices are going down. But, notice and be assured that buying high and selling low is not the way to a great fortune.
It’s sometimes pathetic to hear the brokers commenting on what the other brokers around town had done that day and trying to take and give investment guidance to others. Picture Marcus Padley on Lateline Business one night saying that it was “a move from financials to commodities” and the next night stating that it was “a flight from commodities to financials”. Do you get much wisdom from this sort of commentary? Do you realise that every greedy broker is just trying to guess what goes on the mind of every other broker in town in order to try to outsmart them? But, the question needs to be asked, is this the only way to make some money investing?
The obsession with the market truly is a question o herd mentality. Herd mentality makes all the bears and bulls and all the crashes of the market. The truth of the matter is that most people cannot help but do what everybody else is doing. If most people are buying they also buy, and it’s a bull; if most people are selling they also sell, and it’s an obvious bear. Most people could not do something that other people are not doing, such as going against the flow. Yet, this could be highly profitable.
The investor whose mind does not suffer from herd mentality can, and sometimes does, go against the tide. And this for two considerations: one is that in a down market there are many companies that have great value and a promising future that can be found at ridiculously low prices. If you have the courage of your convictions, you can buy low and wait for their prices to recover. And I’m not talking here of turnarounds.
The other consideration is that, despite the vagaries of the market, even when it does badly, there are always companies that do well. Do you need a handful of examples in the current market? They are: David Jones (DJS), Myer (unlisted), JB Hi-Fi (JBH) and RR Australia (Radio Rentals) (RRA). There are many more. These companies’ profits and share prices are going up while the general market is bumping around the bottom. Naturally, they are not cheap at this stage. But the principle remains that good companies do well in any markets. So, it’s the company and its fundamentals, not the market, what you should be looking into.
As a matter of fact, most investors would gain from not knowing where the market is.
Do you realise that when you invest in lockstep with the rest of the market something unavoidable happens, which is that you then tend to buy high and when prices are going up, and that you also tend to sell low and when prices are going down. But, notice and be assured that buying high and selling low is not the way to a great fortune.
It’s sometimes pathetic to hear the brokers commenting on what the other brokers around town had done that day and trying to take and give investment guidance to others. Picture Marcus Padley on Lateline Business one night saying that it was “a move from financials to commodities” and the next night stating that it was “a flight from commodities to financials”. Do you get much wisdom from this sort of commentary? Do you realise that every greedy broker is just trying to guess what goes on the mind of every other broker in town in order to try to outsmart them? But, the question needs to be asked, is this the only way to make some money investing?
The obsession with the market truly is a question o herd mentality. Herd mentality makes all the bears and bulls and all the crashes of the market. The truth of the matter is that most people cannot help but do what everybody else is doing. If most people are buying they also buy, and it’s a bull; if most people are selling they also sell, and it’s an obvious bear. Most people could not do something that other people are not doing, such as going against the flow. Yet, this could be highly profitable.
The investor whose mind does not suffer from herd mentality can, and sometimes does, go against the tide. And this for two considerations: one is that in a down market there are many companies that have great value and a promising future that can be found at ridiculously low prices. If you have the courage of your convictions, you can buy low and wait for their prices to recover. And I’m not talking here of turnarounds.
The other consideration is that, despite the vagaries of the market, even when it does badly, there are always companies that do well. Do you need a handful of examples in the current market? They are: David Jones (DJS), Myer (unlisted), JB Hi-Fi (JBH) and RR Australia (Radio Rentals) (RRA). There are many more. These companies’ profits and share prices are going up while the general market is bumping around the bottom. Naturally, they are not cheap at this stage. But the principle remains that good companies do well in any markets. So, it’s the company and its fundamentals, not the market, what you should be looking into.
As a matter of fact, most investors would gain from not knowing where the market is.
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