Institutions And Stock Market Comes Under Which Area Of Finance Are You a "Feel-Good Investor"?

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Are You a "Feel-Good Investor"?

That’s not a bad thing. “Feel Good” investors buy stocks because they feel good about the stock or the company that issued it.

“Feel Good” investors are motivated by emotion, not any kind of financial acumen.

That’s not a bad way to pick stocks. It may not be optimal, and it may not be the most profitable, but it’s not a bad way to go.

Let me tell you about an experiment that was done a few years ago.

A group of researchers wanted to see how true random stock selection really is.

They “assigned” a monkey to throw a dart at the financial stocks page.

They then follow the company the monkey “chosen”.

After following the randomly selected companies for a year, they concluded that the monkeys’ selected companies performed better than the S&P 500!

That’s a really scary thought: randomly pick a bunch of stocks and you could beat the market!

Which suggests that the market in general can be seen as a random collection of random events.

Our challenge is “How to profit from such seemingly random events?”

The companion assignment is “When to Sell?”

You don’t make money unless you sell stock. Just holding on to rising stocks can make your net worth look good on paper, but you can’t take the paper to the grocery store and buy dinner!

Only when you sell. Or if you collect dividends from the stock.

Now we have two tasks in front of us:

  1. What stocks to buy?

  2. When to sell the stock?

Another general rule of thumb is: “Don’t plan on keeping the stock forever.” Nothing lasts forever. All you can do is maximize your profits.

Another point: today’s stock market is managed and controlled by institutional investors who control billions of dollars of stock.

You can’t beat them.

But you can profit from them.

May I tell you a little story?

Several years I was trying to “Beat the Table” at the craps tables in Las Vegas. But I have little money and even less knowledge. I observed that there was one player who had a very large chip stack which was very large. And he continues to add to his horde. So I started copying his “trade”. When he puts the chips, on a position, so do I. When he took his position, so did I. And I started collecting chips. Don’t know what I’m doing, I’m actually making money!

Then, thinking I knew something about craps, I went to another table, and you guessed it, put it all back in the casino pocket, plus some more!

Moral? Don’t try to guess at the experts. But you can make a profit by following them.

This led to my first observation about the stock market: Due to the “Beginner’s Luck” phenomenon, amateurs can do much better than the average individual investor.

As your knowledge grows, so does your unfounded self-confidence, and you could soon find yourself succeeding [hindsight] terrible decision. Until you become as savvy as an Institutional Investor, you will probably fail.

Even the professionals don’t always get it right. Look at how many “professional” hedge fund managers have gone out of business. Look at how many stock traders have lost their collective back.

And, on the flip side, look at how many billion-dollar homes have been bailed out for being “too big to fail.”

So, my advice to you is, create a set of trading rules that work for you. Follow them religiously, until they start letting you down. Make adjustments as necessary.

Correctly chosen, the trading rules don’t fail: the principles are universal, but must be followed carefully.

My personal trading rules are very simple:

  1. Choose stocks that pay dividends according to a fixed set of parameters.

  2. Define “sell” rules according to rigid parameters.

  3. Set trailing stop loss orders to protect your profits.

  4. Remove emotion from your trading as much as possible. Never fall in love with stocks.

Does my rule work for me? Yes. My goal is to achieve a monthly dividend income of $2,500 before taxes in less than ten years. After only five years of trading my way, I have achieved a monthly dividend income of $1,800. I am right on target to reach my goal.

My initial dividend position five years ago was only $208 a month.

Because you benefit from my mistakes, you can easily achieve better returns!

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