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Blog : You Know Best When It Comes to Investing
by John Whitefoot on June 20th, 2008
Sometimes it’s tough to say who knows best. We grew up being told “father knows best”. But clearly, that’s not always the case. I was reading this week about a 12-year old girl who was grounded by her father after he discovered she put up photos of herself on a dating site.
Like all wise, disgruntled 12-year olds, she took her dad to court. And, not surprisingly, won. The judge said that depriving the girl of the school trip was indeed, excessive punishment.
Parenting aside, when it comes to investing, you know your own needs better than anyone else does. Yup, more than a broker and more than Wall Street.
On Thursday, two former Bear Stearns Fund Managers were arrested by the FBI for their roles in the collapse of two funds that ignited the subprime mortgage crisis. Or rather, they had the misfortune of having their funds tank first.
The SEC claims the two men committed fraud by falsely telling investors the funds they managed were sound. The arrests are the first from a federal probe of possible fraud by banks and mortgage firms, causing losses that total $396.6 billion.
Now clearly, the subprime debacle is not the litmus test for all investing. But it does show that the big boys and girls do not necessarily know what they’re talking about any more than you do.
We like to think that professional investors do exhaustive amounts of research before they buy low and sell high. Maybe! Or perhaps, in today’s environment, their research can be boiled down to a few simple assumptions: the economy is going to recover quickly; the brand is strong; and the price is right.
Wall Street does not hold the secrets of the temple. And you know your own investing strategy better than anyone. But if you’re a broker, one thing you can count on is a passive penny stock investor to line your pockets.
And being passive in the stock market will never work.
Some may tell you “don’t sweat the small stuff”. When it comes to brokerage commissions and fees – the small stuff is worth sweating. Granted, some brokers don't take accounts under a certain size, but I think you'll always find someone willing to “help”.
Take matters into your own hands right from the start. Set up your own online account and pay attention to the small numbers. They add up.
Afraid of being overconfident - don’t be – well, at least be realistic. In his magnum opus, “Advances in Behavioral Finance II”, financial guru Richard Thaler notes that Wall Street “needs investors who are irrational and woefully uninformed.” You can never learn too much about the penny stock you’re interested in.
You may think you’re no match for their Wharton degree and you may think you’re not privy to information that they are. But the fact of the matter is, if you do your own due diligence, watch the news, and are honest about your own financial knowledge…your miles ahead of where Wall Street wants you to be.