You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -
WHY?
They aren't going anywhere. Some of the stocks that make the headlines every night were leaders of the market 20 years ago. New cycles bring new leaders; this has been proven year in and year out. So many of these TALKING HEADS shout out about "buy and hold" but what are they really holding? They hold old high-flyers that were superstars but have now become fallen stars that sit 20%, 50% or even 90% off of their all-time highs (some may have given you a small return - 10% or less over the past 5 years - WOW - BIG DEAL!). Yes, maybe over 15 or 20 years, you will get your money back - but what is the point? Many of these "so-called" investors tell you how they own XYZ stock and it has returned them 65% BUT they leave out the key factor that it has taken 16 years to get to that point.
One of the strongest and most promising stocks of the early 1900's (1920 decade) was RCA - this stock was one that people claimed you put in your portfolio and hold it till near death - it will NEVER fall and if it does, hold on because it will come back. Well, let's take a look: RCA soared over 1100% during the 1920's and crashed with the rest of the market in the early 1930's. It went from a low 0f $8.70 to a high of $106 to a crash level of $3.00. Some said to hold, some said buy on every dip. - Guess what, it didn't climb back to pre-crash levels until 1963! 30 years to break even for some. Maybe that stock in your portfolio is the RCA of yesterday; history always repeats itself because human nature is always the same!
Stocks are worthy to be held over long periods of time, this is a proven fact but don't EVER hold a stock when it is flashing SELL signals left and right (especially if everyone on TV is telling you to buy now on the dip, "it is a bargain"). These talking heads were saying this about every stock on their computer screen in 2000 and 2001 - "buy the dip". The only dip was the guy on TV and all of the suckers watching him/her. I don't mean to offend anyone but you need to take control of your investing life, you need to learn why stocks go up, why they go down and that NO STOCK is immune to a bear market like the one we just had.
Leaders of the market now, won't be leaders in the future - on some rare occasions, a stock here or there will defy everything and grow decade after decade, but even these stocks end their amazing rise at some point. Same is true for old leaders, they won't lead the markets of today - they become too large and their growth slows, preventing them from being excellent growth stocks and giving you excellent returns. Now - I never said you couldn't own a stock like this, many people are satisfied with these companies, they "feel secure", that is fine; everyone has different goals.
Let the market tell you what is going up or down. Watch "sister stocks", I talk about them in our education section of the website. What do I mean by sister stocks? They are stocks that are in the same industry. When an industry is strong, most of the stocks in this group will rise, hand in hand. (I say most - not all, laggards always stay behind). Fundamentals will be strong for most stocks in the group and technicals will guide you along the trip - think of technicals as a road map.
Once fundamentals have been established, check the charts, if several stocks from a particular group are breaking out of bases, this is a strong sign that something great is about to happen in this group. The more positive the overall market the better the group will perform (bear markets tend to hold down just about everyone). Why buy a stock that has great fundamentals in a weak group? If all other stocks in that group are acting weak, this may be telling you that the "one" bright spot in this group will eventually come back to the pack, so don't chance it. Investing is about lowering your risk! Don't take a risk on a stock that looks good but the industry is hurting.
Buy the leader of a group where several stocks are showing strength. Never buy the cheap stock that is lagging in performance, this is a sure way of losing money - buy the best of the group - the one with the best fundamentals (accelerating earnings, ROE, sales, etc.) and technicals (basing pattern, breakouts on huge volume, relative strength, etc...). What may look high to the general public; usually turns out to be low to the smart professional investor. I am not talking about the "talking heads" on TV - the smart investors work for institutions - they move the market! When they buy, everyone knows because volume jumps to extreme levels or levels not seen in prior months or years. The everyday guy doesn't have this power - ONLY institutions have this power - learn to understand this power, here lies the smart money.
Finally, as I grind this educational information into your subconscious mind, ignore the "Talking Heads" and learn to listen to the market. Price and volume will always give you the best advice.
About the Author
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
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