Throw Out The Rules and Think For Yourself

Commonly held ideas should not be relied on as gospel.  People who spend time with investments come into contact with many experts expounding market theory.

When you are new it is not a bad thing to listen to some of this.  It helps build a framework for your own thinking.  Reading such things will introduce important concepts.

But that is all it should be used for.  The goal of any investor should be accumulating enough knowledge to confidently start making his or her own decisions.  Relying on expert opinions is not going to be helpful in the long run.

While working for a large investment bank I became aware of how little professional advice can be worth.  People higher up in management would trumpet about the genius of our analysts.  For a while I bought that line.  But it became obvious very quickly that any time our firm was involved in underwriting a stock it received a “Strong Buy” rating.  That is a huge conflict of interest.

2016 illustrates the importance of self-reliance.  Something that gets a lot of coverage in financial media is the “January Barometer.”  This says that if the S&P 500 is down in January the market will have a bad year, and vice versa.  January, 2016 was terrible: after its worst New Year’s start ever the S&P 500 finished January down 5.07%.  But it did not seem like there were fundamentals behind this rout.  It seemed like panic selling based on overblown China-related fears.  So I bought stock that month.  In the end I was correct: the S&P 500 finished 2016 up 9.5%.

It takes time to build enough experience to confidently make decisions.  But the goal of any investor should be getting there.  Relying on the opinions of others is a poor substitute.


© 2017 – Essentials of Investing
Articles presented here are general opinions for your own consideration.  They are not specific advice for any one investor.
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