You Are Not A Day Trader

I find this whole topic very amusing. You know, what people think they are these days.

Have you ever heard the phrase, “I know just enough to be dangerous?” Yup, that’s the one. Give a regular guy like you or me a few fancy charts in an online trading account and we start telling our friends that we are going to get into day trading.

Let me reiterate what I have said in one of my previous posts – No one can predict what the stock market or a particular stock is going to do. I don’t care if you are tracking curves and lines and squiggles all day long. If someone could predict this stuff with any amount of certainty, they wouldn’t be all crazy and weird while trying.

I remember a long time ago, when I was attending a community college. A girl in my economics class blurted out, “I know what stock you should invest in. Kleenex. I mean, people are always going to need tissues.” I was like, “Wow, what an idiot.”

You have no idea how difficult it was for me to restrain myself from walking over there and explaining to her how costs affect profits and how competition affects sales. Of course, that’s just the tip of the iceberg when dealing with this kind of stuff, but I think it would have helped her understand that just because something is in demand, a company offering it doesn’t necessarily have a favorable stock. It’s kind of like saying, “Hey, I’m going to invest in a certain bank because people are always going to need someplace to put their money.” Yeah, but unfortunately there are about a zillion banks out there competing with one another. Which one are you going to invest in?

Anyway, let me just mention this. I have an undergraduate degree in business and an MBA as well. I would say that these two degrees haven’t made me much smarter about business, but they sure did a heck of a lot in the way of teaching me how to research things and how to work hard. I remember saying that graduate school was like boot camp. If you think 18 credits is tough, try taking 18 credits, but with classes that split themselves up into two parts, accounting and finance, HR and operations management. Oh man.

I remember learning all about how to value a company’s stock price. I have no idea how to do it now, but I do remember that there was some math that had to go into it. If the average Joe can’t do the math to simply value a company’s stock price, what in the world are they doing sitting there in there boxer shorts buying and selling stocks online? I mean, c’mon.

Everyone knows this. Everyone knows that if you hear a tip on TV, you are way too late. Let me give you some hypothetical example of the types of things that go on. Let me think…if I were a host of one of these fancy shows, or even if I were just a guest, I would certainly go out and buy a particular stock. Then, I would go on TV and mention that my stock was really great. I would wait for everyone to buy it and then I would sell. I am pretty sure this is against the law, but who do you think this guy is looking out for? Yeah, you got it…number one. And that number one isn’t you.

Remember, you aren’t a day trader. You aren’t even close. Get yourself diversified with nice low cost ETFs and let ‘em ride. Keep rebalancing and adding over time and you will have a good little chunk of money when you are ready to use it. Be calm, be patient and most of all, don’t react.