Some truths for the individual investor – Part 1

The most common question I get is. “Hey Dude, you know stuff about markets, how can I make loads of money? Gimme some tips” So here goes,

First some hard truths,

You cannot time the market
A large swathe of individual investors have lost their shirts by trying to time the market. Give up, you don’t have the smarts and the time to do this. There are *very* few people who have been successful at timing the markets and you can argue that this was just pure luck. The past is not the future, and you do not have a crystal ball.

You are not that smart at picking stocks
Successful stock picking requires fundamental research. You have to understand how companies work, deeply understand thier financial statements and predict their future (see #1 – crystal ball). There are ton of people in the financial industry who do this day and day out. What makes you think you can be smarter than them with .001% of their effort?

Your friend/co-worker/uncle/son-in-law’s-janitor is probably not that smart either
Taking stock tips from somebody else as gospel is a fools game. This is not like a restaurant recommendation where the cost of failure is low. This is your hard earned money that you are committing. Think about it.

Nothing is a sure thing
Whenever anybody pitches you a  “sure” investment – RUN IN THE OTHER DIRECTION. There is nothing like a sure thing. Remember, house prices always go up (yeah right), Stocks always appreciate no matter what (hmm, you get the drift here), Dubstep will always get better (I kid, I kid :))

You cannot master exotic products
Options, Futures – exotic products, everybody thinks they can make money using these products. The ugly truth is most individual investors lose money with exotic products. When basic (stock picking) is a stretch, why go exotic?

Successful Investing is boring and hard hard work, not the exciting stuff movies are made of
Successful investing requires effort and attention to things like process and research. Very Very boring things. You need to commit time and energy. You probably are not prepared to do this full-time.

In part 2, I will tackle the advantages individual investors have and articulate some “good news”. As usual disclaimer applies.

1] By smart, I mean smart at picking stocks, not making any judgements on their intellectual capacity for other things 🙂

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One thought on “Some truths for the individual investor – Part 1

  1. Pingback: Some truths for the individual investor Part 2 « Monetary Musings

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