Optical Illusion Part II

As we mentioned in the last segment, the way the financial markets are acting right now, I would assume it’s highly reasonable to be playing it safe.

Let’s return back to one of the most famous money-making-strategies “Buy Low, Sell High”. Easier said than done! How do you know what’s a high and what’s a low?

This is where I believe Investor Sentiment can be applied. If only 1% of the people are responsible for more than 43% of the money in our system (and that number keeps increasing), than its obvious that you ain’t going to become wealthy following the crowd.

So how does one become wealthy, or well-off as they say? Let’s begin by the things that they watch out for most:

Debt! (The four letter word that’s worst than all others). Trying to make money while you’re stuck with a mortgage and a cabinet full of indebted credit cards is like building a mansion on quick sand. When it falls through you and your accumulated wealth will both be six feet under. It’s not for no good reason (double negative) that debt is known as the pill of financial suicide.

Speculation! During the charging stock bulls of the late 90s, we not only saw a surge in stock prices, P/E ratios and positive sentiment, but also a sharp decline in human intelligence. People would buy stocks because they liked the ticker symbol or simply because of the fact that the stock had a “dotcom” after it. Investors buy companies not stock symbols. Solid growing and financially stable companies that make money instead of lose it. Good Investing is just knowing the best place to store your money.

The Odds. Here is something most people don’t consider that often. Margin of Safety. Are the odds with you or against you on your investment? It’s the science behind diversifying. If you have your hand in many pots you’re gonna win something. But it’s slightly deeper than that. “Better to win every time than to win the lottery once a lifetime.”

Day Trading! Actually you can, but only if you’re so good that you can rip a daily profit after taxes, trading costs and don’t forget inflation.

Inflation. If you have $100 in the bank, and kept it in the bank for a year, and inflation was calculated at 3%, then you actually lost 3%! That means that in the next year’s terms you would have approximately 97.09 left! Say hello to Mr. Inflation.

Your Broker. Do you know why the whole floor of the NYSE bursts into a simultaneous cheering at the closing of the bell? That’s because whether you made or lost, the traders made their money.

The Seasons. Everything has its time. Good times become bad, to good again. It’s Life. Live with it and learn from it. The Contrarian (refer to top of Blog) can predict the future based on what people are doing. Maybe after housing prices decline and the Dow goes nowhere over the next few years they’ll understand…and of course maybe not.

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