A Gadfly On A Dinosaurs Butt, Or The Hood-winking Of The American Investor
Have you ever noticed how some words in the English language are so perfectly named for what they describe? And how some words seem to be, I guess you could say, backwards? For instance, the word sunflower! How wonderfully aptly named is the sunflower, that beautiful yellow flower that follows the sun from sunrise to sunset. And then there are those words in the English language where there meaning appears to be backward, so to speak - like parkway and driveway. When my car is parked at home, I would think it would be parked on, well, a parkway - and when I'm on the road driving somewhere, I would think I'd be driving on a ? a driveway. In the stock market world, I think the word analyst is a perfect word in the English language and stockbroker sounds right to me, too. And this leads me to what I call the 'brainwashing mantras' of Wall Street. The brainwashing mantras of Wall Street may take the form of a number, such as a stock rating of 1, 2, 3 etc. Or the mantras may be a star, 1 star, 2 stars etc. The mantras may be a word or a group of words- attractive, unattractive, neutral, market perform, market out-perform, market under-perform, market under-weight, market equal weight, market over-weight, sector perform, strong buy, buy, sell, strong sell. These mantras are so ingrained in Wall Street and investor's minds that they have created multi-billion dollar industries. There are other types of mantras, such as RSI (relative strength index-a trading volume indicator), Bollinger Bands (named after its creator John Bollinger (he use to be a regular on CNBC) and the bands deal with the channels a stock trades in, in relation to its 'moving average'- another mantra), Stochastics (used to tell if a stock is 75 % overbought - too many people have been buying) or 25% oversold (too many people have been selling), Momentum, MACD Convergence/Divergence- price of stock, up or down, in relation to its moving average), 50 day, 200 day moving averages, triple bottoms and tops, pendants, flags, bear and bull markets, head and shoulders formations, double bottoms, P/E ratios etc, etc, etc, etc. All these mantras serve a purpose (and if you're inclined to trade in the market they are, I admit, useful tools) - they create commissions. And in my opinion, have no meaning what-so-ever for the long-term, dollar-cost averaging, buying investor of company's shares, free of commission charges, whose companies raise their dividend every year, with the investor's idea or purpose being to provide an 85% tax-free income, through ever-increasing dividends for the rest of their lives, no matter what the price of the stock at any given time in the market place may be. (Whew! What a sentence!) Here's another mantra that comes to mind ? 'consensus estimates'. The analysts that follow a company on Wall Street created this mantra. There may be three analysts or thirty analysts following a company and a consensus estimate of the company's next quarterly earnings will be projected from these analysts. For example, last quarter the company XYZ had record earnings of 90 cents a share. The company's consensus estimate predicted by the analyst for the next quarter is for one dollar a share. XYZ on the day the earnings are to be announced is selling at $40.00 a share. The earnings for the company are reported during the day and XYZ reported making 95 cents a share, missing the analyst consensus estimates of one dollar and the stock immediately drops to $38.00 a share. Never mind that XYZ had just made another quarter of record earnings, never mind that XYZ is paying a 4% dividend and has raised their dividend for the past twenty-five to thirty consecutive years (and three months from now the normally scheduled dividend increase will occur; after all, they'll have the money to raise it again, with record earnings and all). The only words that I can come up with to explain this type of stock price behavior after seeing something similar happen time and again through the years are 'brainwashing mantra at work.' I think I would be remiss if I didn't at least mention the mother of all mantras ? the mutual fund, though I hesitate to mess with this mantra. (They being soooo big in investor's minds, and me just being a lowly gadfly on a dinosaurs butt; it really shouldn't matter what I say, one way or the other.) As I write this, some are in such a mess - caused by illegal trading practices costing investors tens of millions of dollars. One mutual fund has been fined $100 million, another $125 million. I wonder where they'll get the money to pay the fine. I believe all investors in a fund pay the fund's operating expenses, as well as the fund's marketing and management fees. They are called 'hidden fees' (I don't believe there is a hidden 'fee-fees'- this would be a fee that enables you to pay the fees - naw! Don't laugh- one mutual fund recently had been fined 450 million for 'hidden fee' practices). It is really, at the time of this writing to early to determine if the mutual fund industry has been 'riding a good horse to death. There is an enormous amount of investor dollars supporting some whopper salaries on Wall Street. Just recently (the summer of 2003), Richard Grasso, the once former head (CEO) of the New York stock exchange was forced to resign, after his salary for the past 2 years were made public. His salary - 12 million a year for the past two years, a check for $48 million, which his advisor suggested he return (which he did) and a pay-package of $139.5 million (which he hasn't returned, as of this writing-mid-2004 and a lawsuit to recover some of the monies is pending). Now, that is just one man's salary on Wall Street and it is certainly good work if you can get it! Where did all this money for his salary come from? If the money didn't come from investor's dollars, why were Pension fund managers so outraged by Grasso's salary that they threatened to pull billions of Pension fund dollars from the New York exchange? I really don't know where the money came from to pay his salary. What I do know is the one place where the money for his salary didn't come from, and that is from the Stockopoly investor. Not one cent! For more excerpts from the book 'The Stockopoly Plan' visit http://www.thestockopolyplan.com About The Author Charles M. O'Melia is an individual investor with almost 40 years of experience and passion for the stock market. Author of the book 'The Stockopoly Plan', soon to be released by American Book Publishing. You have permission to this article either electronically or in print as long as the author bylines are included, with a live link, and the article is not changed in any way (typos excluded) Please provide a courtesy e-mail to charles@thestockopolyplan.com telling where the article was published. chassmo99@yahoo.com
Related News
|
 |
|
|
RELATED ARTICLES
Investing In or Owning Drug Lab Properties
Clean Up (includes the insides and the outside of a building)
Options Made Easy and Investor Education - Simple Enough for a 10 yr Old Kid
How many of you out there think that the market is performing well?
Sitcom Investing
A fickle stock market encourages good-humored mockery.
Investing Psychology Today Requires All Traders to Awaken Their Speculator Minds
Stock trading strategies are as rampant today, as they were during the Great Bull Market. Yet, can you truly master the stock market like so many investing books propose?
Stocks: Reduce Risk Yet Maximize Profits
It is important to note that every smart investor wants to minimize risk while maximizing profit potential. Yet conventional investment theory tells us that in order to increase returns, you have to increase risk.
Is a SEP Plan Right For Your Business
A SEP is a special type of IRA. Under a SEP plan the employer creates an IRA account for each eligible employee, hence the name SEP-IRA. A SEP is funded solely with employer contributions. Employees do not make contributions to their SEP-IRA retirement account. Any money that goes into a SEP automatically belongs to the employee. Thus, the employee has the right to take his SEP IRA account money with him whenever he stops working for the company.
Sell Discipline for Investors: Importance and Execution
Investors usually don't have an aversion to buying an asset. The real gut wrenching decision is when - and if - to sell. What most don't realize (or don't want to realize) is the overwhelming importance of the sell decision. Let's explore the reasons why and the techniques that can calm a seller's nerves.
Scots Beat Yanks in China Bank Deal
With visions of an ATM in every neighborhood in China, foreign banks and investment firms are queuing up to join the "China Club."
Your Portfolio and ?Old Ironsides?
The USS Constitution first ventured into the waters in 1798. From there she became an icon of durability and success.
Creating a Financial Future - Putting Your Plan Into Action Part 1
This column has previously discussed "picturing the future that we desire", and outlining a plan to achieve it. We mentioned that the plan must include goal-setting, measurement, and implementation. That implementation is this column's focus.
Need To Trade!
You don't HAVE to be trading.
Trading Tips No 7: Developing a Casino Mentality for the Day Trader
I submit that the successful day trader would profit well to adopt a casino mentality. At first glance, this sounds reckless and nothing more than a gambling attitude - but it's not. Why? Because everyone knows that it's the casinos that profit and take in all the money on a consistent basis. And, of course, the patrons end up losing even after brief winning streaks.
5 Ways To Protect Your Bond Portfolio From Rising Interest Rates
The Federal Reserve recently raised its target federal funds rate for the first time since March 2000. This could be just the tip of the iceberg, though, as many experts believe rising inflation and a strengthening economy will spur continued rate hikes for the foreseeable future.
Success Trading: Yet More Basic Terminology for New Traders
In this day and age of online brokers for virtually every market out there, there are some very useful tools that will help protect your account and lock in profits when you have them. It is our recommendation that you use a good online broker and take advantage of not only the low commissions they offer, but also the automated tools that are available. These tools are virtually idiot proof if you use them. The number one reason that people's accounts go belly up in the markets is because they lack the discipline to stick with their trading plans and let emotions drive their trading decisions. This approach is a guaranteed way to lose in the markets. Oh, you might get lucky on occasion, but eventually the market will take your money. Let discuss some of the trading tools we're talking about.
Economic Survival in the 21st Century - the Three Key Questions to Ask
In this "special report", I want to pose a few important "philosophical questions" to my readers. Firstly -- our Federal Reserve Chairman, Alan Greenspan, addressed the effects and implications of our aging population on things such as Social Security again in a speech that he made last Friday. Readers may remember that I also briefly mentioned this issue in my June 24th commentary. I urge you to keep this worldwide phenomenon of the aging population firmly on the back of your minds. If you are like most people, then you earn you living by producing a certain thing ? such as a consumer good, or a service that the masses want. Let's face it ? how many people really "struck it rich" by being pure traders or investment managers? The stock market and other financial markets are definitely very important to us investors/traders but this "super secular trend" of the aging of the worldwide population will impact every aspect of our lives, whether it is losing our relative competitiveness on the world arena, increasing pension and healthcare costs, or even a potential fundamental change of our political system.
It Is Never Too Early To Start A Roth IRA!
The Roth is kind of weird until you get used to it in terms of how much you can put in (contribute) each year depending on how much you earn (compensation). Because of this you really have two limits, one dealing with your compensation and the other dealing with your contribution. Let me explain.
Property Investment Just Got Exciting
There is an area in Brazil that has lower crime & lower property prices than where your are probably sitting right now!
It Must Be Joe Cockers Market
Agonizing displays of poor theatrics failed to entertain my mind one recent Saturday evening. I scrolled across several television channels hoping for an engaging program. Finally, one particular concert intrigued my senses. There on the stage performed one of rock and roll's most expressive singers.
Lobster Trapping for Investment Ideas
Recently, my family and I took a trip to Maine to visit relatives. During our stay, we toured the rocky shore lines and took in the beautiful architecture of the old towns.
The Realities Of Market Timing
Market timing systems are based on patterns of activity in the past. Every system that you are likely to hear about works well when it is applied to historical data. If it didn't work historically, you would never hear about it. But patterns change, and the future is always the great unknown.
|
