The Folklore in the Stock Market

The cheapest commodity in the world is investment advice from people not equipped to give it.

Many a man who doesn’t own a share of stock still fancies himself as something of an authority on the stock market, and he’s ready and willing to deliver himself of an opinion about it on the slightest provocation. If he actually owns stock himself, chances are you won’t have to ask his opinion. He’ll tell you what to buy, what to sell, and what’s going to happen to the market. And you can’t stop him.


stock-market image

The more a man knows about the market, the less he is willing to commit himself to it. The wisest of them all, old J.P. Morgan, when asked about his opinion of the market, always used to reply, «It will fluctuate.» He wasn’t just being canny. He knew that was the only provable statement that could be made about the market.

Nevertheless, over the years, a number of generalizations about the stock market and about investing have come to be accepted as little more than folklore. And like most folklore, each of them has a certain element of truth about it- and a certain element of mistruth. Of course, there is a measure of sense in the axiom. If you start worrying about fluctuations of a point or two and money in commissions needlessly and maybe end up with less profit than if you’d «bought them and put ’em away».

Nevertheless, it’s only good sense to remember that securities are perishable. Values do not change with the passage of time. Industries die, and new ones are born. Companies rise and fall. The wise investor will take a good look at all his securities at least once a year, and he could do worse than to ask his brother to review them with him then.

Profit in Stock Market

Of course, a profit is always a nice thing to have in the pocket, not just on paper.

«Buy when others are selling. Sell when they buy.»

This sounds like a neat trick if you can do it.

Obviously, you can’t make money if you consistently buck the trend of the market. Where, for instance, would you have been if you had been selling stock all through the bull market since 1950? So the trick lies in anticipating the action of all the others – in buying just before the crowd decides to buy and selling just ahead of them. This is just exactly the trick that the exponents of various formula plan to try to turn by hitching their buying and selling operations to some arbitrary decline or advance in the market. Others, less scientific, simply try to sell at the tops and but at the bottoms. But how do you know when the market hits the bottom? How far down is down?

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