Kim Snider
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June 21, 2006

Stay away from trying to time the market or pick stocks

Stock prices act as if they were a random series. This is Finance 101. And yet, the minute all those freshly minted Finance degrees walk out of the hallowed halls and get a job on Wall Street they conveniently forget that fact.

 

The future direction of price cannot be predicted by anyone, consistently, over any long period of time. The few that are able to beat the market's benchmark over five, ten or twenty years fall squarely within the number you would expect given the laws of chance. If you imagine a money manager as flipping a coin - heads you beat the index, tails you don't - these are simply the lucky few who have flipped heads ten times in a row.

 

I could write a long, long article on why it's not possible. But it doesn't really matter why it's not possible. It just matters that you understand that its not possible. And that you stop investing as if it is.

 

That means swearing off buying individual stocks hoping to sell them to some greater fool later. That means swearing off mutual funds, variable and equity indexed annuities. It means giving up gambling on anything that uses stocks as an unhedged bet on the future direction of price.

 

So, if you can't bet on stocks any longer, what should you do?

 

Markets may be unpredictable. Stock prices may be unpredictable. But the people who bet on them are not. Their irrational behavior is very predictable. They make the same stupid decisions over and over again. Investors are hard-wired to buy high and sell low. They are hard-wired to be overly-optimistic. They are hard-wired to see patterns where patterns don't exist.

 

Wall Street is very aware of the implications of behavioral finance and they essentially use it against us. Are investors, on the whole, likely to wise up? Not so long as Wall Street continues to spend $19 billion dollars each year on marketing to make sure that they keep making stupid bets.

 

It is my belief that betting against the bettors is the surest bet you can make. What do you think? Take the following poll. You can also leave your thoughts and comments below. As always, they are both welcome and appreciated.

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

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Focus of This Blog

Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.

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