Before getting into the specifics of value investing, or even investing itself it is important to focus on mistakes most beginners make in their investments. These mistakes occur both with amateur young investors, and older investors who have been investing their entire lives. These mistakes believe it or not are very common among “professional” money managers who you might see on TV or hear on the radio.
One thing that will shock most people is that there is no amount of experience or intelligence that creates a good investor. While the more a doctor learns the better physician he will likely become, the more a mechanic learns about cars the more of an expert car mechanic he will come this is not the case by investing. Professional investors are many times as clueless about the market as amateurs. There are several reasons for this, which will be discussed later in the book.
Lesson#1 Do Not Listen to Your Stock Broker
Sometimes investors buy stocks based on what their stock broker recommends. While stockbrockers are becoming outdated due to internet trading, many people still feel comfort and security in having a stock broker to recommend stocks to buy. This is in no way an attack on all stock brokers, but in general it is best NEVER to listen to your stock brocker. There are two reasons for this; the first reasons is that stockbrokers are not fiduciaries, and according to the law and merely require that stockbrokers suggest investments that are suitable to “clients”. This is a very grey area and it is easy for a stockbroker to say his investments were suitable for clients.
So why would a stockbroker not want to have his client’s best interests in mind? The answer is money, money, money. Stock brokers make money when you buy or sell a stock. Whenever, you conduct a transaction with them they get a commission. It is in their best interest for you to buy and sell as much as possible because this is how they make money. All they need to claim is that the investment was suitable, and they are off the hook. The stock recommended can go bankrupt but the broker still gets the same exact commission.
Another reason you should not listen to your stock broker is their lack of knowledge of investing. To become a stockbroker all one needs to do is pass the series 7 exam (in certain states other certifications are required). The test can be taken after studying for a month or so. Most of the test barely deals with stocks. Only 8% of the exam tests one’s knowledge of stocks! The majority of the test focuses on bonds, options and regulation. The odds are your stockbroker knows very little about performing an in-depth analysis on stocks after passing the series 7.
So how does your broker decide which stocks to recommend, does he just throw darts at a board and pick the stock that the dart hits? No. Many stock brokers recommend stocks based on what they their Squawk Box. The Squawk Box is an intercom that is used to communicate between the firm’s analyst and its brokers. The broker hears on the loud speaker to recommend stock X, and calls up his client and recommends him or her to buy stock X. It is very likely the broker never read any of the company fillings that the broker recommends their client put thousands of dollars into. In short, the common stockbroker is no more than a salesman.
http://www.valuewalk.com/
One thing that will shock most people is that there is no amount of experience or intelligence that creates a good investor. While the more a doctor learns the better physician he will likely become, the more a mechanic learns about cars the more of an expert car mechanic he will come this is not the case by investing. Professional investors are many times as clueless about the market as amateurs. There are several reasons for this, which will be discussed later in the book.
Lesson#1 Do Not Listen to Your Stock Broker
Sometimes investors buy stocks based on what their stock broker recommends. While stockbrockers are becoming outdated due to internet trading, many people still feel comfort and security in having a stock broker to recommend stocks to buy. This is in no way an attack on all stock brokers, but in general it is best NEVER to listen to your stock brocker. There are two reasons for this; the first reasons is that stockbrokers are not fiduciaries, and according to the law and merely require that stockbrokers suggest investments that are suitable to “clients”. This is a very grey area and it is easy for a stockbroker to say his investments were suitable for clients.
So why would a stockbroker not want to have his client’s best interests in mind? The answer is money, money, money. Stock brokers make money when you buy or sell a stock. Whenever, you conduct a transaction with them they get a commission. It is in their best interest for you to buy and sell as much as possible because this is how they make money. All they need to claim is that the investment was suitable, and they are off the hook. The stock recommended can go bankrupt but the broker still gets the same exact commission.
Another reason you should not listen to your stock broker is their lack of knowledge of investing. To become a stockbroker all one needs to do is pass the series 7 exam (in certain states other certifications are required). The test can be taken after studying for a month or so. Most of the test barely deals with stocks. Only 8% of the exam tests one’s knowledge of stocks! The majority of the test focuses on bonds, options and regulation. The odds are your stockbroker knows very little about performing an in-depth analysis on stocks after passing the series 7.
So how does your broker decide which stocks to recommend, does he just throw darts at a board and pick the stock that the dart hits? No. Many stock brokers recommend stocks based on what they their Squawk Box. The Squawk Box is an intercom that is used to communicate between the firm’s analyst and its brokers. The broker hears on the loud speaker to recommend stock X, and calls up his client and recommends him or her to buy stock X. It is very likely the broker never read any of the company fillings that the broker recommends their client put thousands of dollars into. In short, the common stockbroker is no more than a salesman.
http://www.valuewalk.com/
