The Bull Hunters Guide

The tip we’re going to cover this time deals with fads and trends and what effect they really have on particular stocks and the market as a whole. You often hear of people “analyzing” stocks by looking at their past performance and trends, in hopes of gleaning some bit of insight into how the stock will perform in the future. Despite the conventional wisdom, this is by and large a waste of time.

The Gamblers Folly

Ever hear of the Gambler’s Folly? Imagine a guy watching a Roulette wheel in Las Vegas. He sees it come up black an astonishing ten times in a row. He might say to himself, “That’s it. Statistically speaking, red is bound to come up next, the odds favor it!” and put all his money down on red, certain that it’s time had come. However, imagine as well that a different man who had not been watching the wheel just now walked up for the first time. Would it be more reasonable for him to bet on red as well? Of course not.

The reality is that each time the wheel is spun, there is a perfectly equal chance of whether it will come up red or black, and what colors have come up on the previous ten spins have absolutely nothing to do with influencing that outcome. The stock market, of course, isn’t just a game of chance, but the point still stands: past performance is a very unreliable indicator of future performance. There are just way too many variables involved in the market at any given time to think of things that way.

The Next Big Thing In The Market

Nevertheless, you’ll always hear people talking. They might go on and on about some great new technology or service that has been seeing astonishing gains recently. It’s “the next big thing“, they’ll say, and people tend to buy into it in droves.

However, the cold fact is that once people are talking about a stock, it’s probably already too late for you to get in on it. The reason they’re talking about it is the good past performance it’s had, and as we’ve just seen, that’s no way to judge a stock. Therefore, resist the temptation to look at past performance and follow fads in investing. You’ll never get ahead that way.

Instead, take the time to learn about the factors that really do influence the market and study them. It’s the only way to formulate a predictive strategy that can be called anything close to accurate.

See you next week for part 4 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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This time we’re going to talk a little bit about the ups and downs that are inherent in the market. The reason the stock market has such an alluring draw to many people isn’t just because of the potential to make a lot of money at it, but also because of its fast paced nature and it’s sense of adventure. Anyone who plays the market can literally be riding on a huge wave of success one minute and be totally wiped out the next. Everyone hopes to be the person who “got out just in time and made off good” or the person who “got in just in time, right before the spike hit“. This element of strategy and constant fluctuation is one thing that makes investing so enjoyable. Because of that, it’s important to remember that this up and down fluctuation is just an inherent feature of the stock market. When you see stocks wiggling up and down over a week’s time, think nothing of it. Such behavior is perfectly normal, and it’s long term trends that tend to reveal more useful information about a stock’s future projections.

Watch The Big Fluctuations

As hard as it might be to swallow, this advice applies to big fluctuations as well. Many times in the past, and many times in the future as well, the market has and will go through periods of decline known as “slumps“. When these happen, stocks across the entire broad tend to drop in value sharply, and it often takes people totally by surprise. Those who are unprepared for it might begin to panic. They’ll wonder if their long term strategies that seemed so sound yesterday were really so hot after all.

After Every Slump In History…

Changing your long term plans in the face of a slump is always a bad idea. If you want to put money into the market, don’t be afraid to do so. Remember that there’s no where to go from the bottom but up. This isn’t just useless optimism, either. After every slump in history, there’s been a corresponding spike of activity known as a rebound. Those who remain confident and continue on their normal course of activity throughout a slump are those who will be there to reap the rewards of the rebound as soon as it happens. Stick to your guns, and weather the slumps as best you can.

See you next week for part 3 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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I have been promising a part 2 to The Bullhunters Guide eBook. My ideas haven’t come to fruition so far. Instead, I have put together a 12 Part Basic Investment Strategies blog series. It will be posted weekly here in The Bullhunters Guide.

This blog entry is the first in the series. The series has been designed from the ground up to help you get more actively involved in the world of investing, so that you can get the most out of your investments. Our approach is to take the amateur investor and slowly introduce him or her to the more sophisticated and advanced concepts that are practiced to great profit by the professional traders in the industry. In other words, this is a tutorial in how to become wealthy! The series will be rather long, and each blog entry will concern itself with one particular technique that you can add to your repertoire of investment knowledge and strategies in order to become a stronger player in the stock market. So, just sit back and relax, and try to take this all in. Ready to start maximizing your earning potential? Then, let’s go!

This time, we’re going to get off to a really basic start and discuss the virtues of diversification. Chances are good that you’ve heard the jargon thrown around on a few television dramas from time to time about how so and so was in dire need of “diversifying his portfolio“. Well, that trope had to come from somewhere.

Diversify Or All Your Eggs In One Basket

Diversification is a rather simple concept that simply refers to the idea of “not putting all your eggs in one basket“. Many beginning investors are often tempted to buy a huge number of shares in a single stock, because the initial cost of sales commissions will usually be quite a bit lower than if they had taken that same amount of money and bought just a few shares in a wide number of stocks. Furthermore, they tend to think that without a substantial number of shares in a stock, their payout will never “amount to anything”.

Try and overcome this way of thinking. The upfront costs might be higher, but what will you do if that one stock you put everything in collapses? It’s happened to many people and it can easily happen to you. Avoid this potential by spreading your funds around in a variety of interests, preferably across a number of different industries. This should help to protect you somewhat against market forces that can sometimes capsize a whole industry worth of stocks and leave you with losses in every single stock in your portfolio.

See you next week for part 2 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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