-Jul-
11
Refuting the 7 Myths of Self-Directed Investing - The First Amateur Mistakes (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comments (4)

Investing Myth

Investing on your own takes too much time.

True, but that was back in 30 years ago. Today we live in a world that allows accessibility to many different markets all over the world. On top of this, the exchange of information is much faster then it use to be. If you have as little as 10 minutes per day, you can get all the information you need to be a successful investor.

Investing Myth

Investing in the stock market is like gambling.

Successful investors know when the odds are in their favor and when they are gambling. I agree that like gambling, there is risk involved with investing. However, unlike gambling, which is designed not to offer growth opportunities (but rather short term fluctuations in your money), investing provides both you and the business your investing in the opportunity for growth.

Investing Myth

Paying a professional is better than trying to make your own investment decisions.

Statistics show that only one out of every five mutual fund managers will actually best the S&P 500, not to mention the huge commissions they charge. With that said, if you do not have sufficient training to evaluate a stock’s performance, how will you be able to know if you have found a skilled money manager?

Investing Myth

Investing on your own increases your risk.

This statement would be true if it stated “Investing on your, without the right education, increases your risk”. I would agree with that, yes. With the proper education however, I am a firm believer that no one cares more about your money then you.

Investing Myth

Investing is as simple as knowing which stock to buy.

50% of an investment is knowing when to buy the stock. Care to take a guess what the other 50% is? Very good – when to sell the stock of course! Many investing experts would agree that an exit strategies have a bigger impact on your investment performance than your buying strategies.

Investing Myth

You have to be intellectually gifted to do your own investing.

Not exactly. Many research projects have consistently shown that there is no significant correlation between a high IQ and investment performance. What is true is that education and experience in the market can go along way to improving your chances.

Investing Myth

Individual investors can only make money when the market is going up.

The truth is that the market is always going up somewhere. Even when the market is in a downward trend, this could simply mean that money is shifting from sector into new sectors. If you can spot this shift, then of course you could make money no matter what way the general market is trending. Nobody is forcing you to keep your money in a losing investment, so move it when the shift is on. You have an advantage over mutual fund managers in that they cannot be as quick to move money around as you can. You are not limited to buying and holding like some of them are.

4 Comments - Post your comment below.


eriksend
Jul. 18, 2006

sometimes there is a sudden and intentional transfer of funds from market. be aware from rumours. please provide some guidelines on this important issue.


Chad Lapa
Jul. 18, 2006

Eriksend,
You bring up a good point here. You may have heard the saying "buy on the rumor, sell on the facts". This is a saying that I don't incorporate into my trading strategy because many times you end up missing the boat and buying or selling into a situation that you shouldn't have.

The market usually trades 6-8 months in advance. Too much perfect timing and luck is involved to try and beat the market to the punch when such sudden moves occur. Instead what I look for are markets that are "heating up" and follow the leaders as well as look for undiscovered opportunities within those markets. Remember that large institutes will often times take up to a month or more to become fully invested in a position. This type of steady institutional money flow is what I look for. I am more interested in trading strong sectors based on technical analysis then I am trying to guess how the market is going to react to rumors and seeing how fast I can pull the trigger in an attempt to beat the market to the punch.

Relax; take a deep breath for a second. Find a solid investment opportunity and follow the steady institutional money flow. Develop a plan for the stock by correctly identifying critical support levels to help you determine what injection points to buy on as well as where to place your stops.

Hope this helps Eriksend :-)


Dividendgrowth
Aug. 2, 2007

Dear Chad,

How do you actually identify the institutional money flow. Where on the web can i find this information?

Thanks


Chad
Aug. 2, 2007

Hey,
I track institutional money flow via a software package called Investools. This software shows me visually the weekly flow of institutional money into and out of different sectors. The chart itself is updated once a week and it is easy to pick out patterns and watch what sectors are seeing significant money inflow vs. which ones are starting to slip a bit. Its a VERY helpful chart and always serves as a great starting point for me when looking new trade ideas. After all, a stocks movement is often times based 70% or more on institutional investments. Its very important needless to say.
Kind regards,
Chad

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