October 20, 2017

The biggest enemy of the stock investor: You yourself!

You have to know that you are your biggest enemy when it comes to stock investing, as you are a human being and human beings are controlled by emotions. Newspapers, the media, and friends will tell you about which companies are currently on the agenda. However, they are not the only ones with this opinion, and therefore the stock price is already high. If you use this approach to buy stocks, then you’re always the expensive stocks. That’s why you shouldn’t let the news influence your decisions.

A better solution is to only stick to financial facts because those types of analyses are free from emotions and feelings. This is how I’m doing it, by using financial facts as my primary guide.

It is very different from the popular opinion that stories about stocks are important when thinking about what to buy. If a company is currently popular, then people think they should buy it. If the company has to deal with negative news, then they think that its stock has to be bad.

However, this way of thinking isn’t logical, because you should assume that this kind of information is already included in the stock price. Only opinions that are contrary to that the public can actually help you when choosing stocks. However, you won’t find these opinions in the public press, because if you did, then it wouldn’t be contrary anymore.

For this reason, investors who let financial facts guide them will always have an advantage. Because they don’t buy stocks based on stories for the public, they cannot be confused by those stories either. The result is a stock portfolio without the misconceptions of the public opinion. In the long run, you will achieve much better results with this approach, and have less work besides.

An even better approach would obviously be to recognize the public misconceptions and use them to outperform the market. However, this requires a lot of effort that most savers simply cannot afford.

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