Stock Picking Systems….
I am often astounded at how many people have “bought in” to the idea that day-trading stocks can work for anyone that has the time and intelligence.
I often hear, “I was doing pretty well picking stocks, but it was just too much work. I had to constantly stay on top of things. I just don’t have the time.”
And there are PLENTY of people more than willing to sell you their fool-proof stock-picking system. Some cost as much as $7,000.
$7000?! Well, I guess if you want to have a roadmap to being a millionaire, that’s just what it costs. You have to spend money to make money, right?
Today I am going to review a very common stock picking strategy called “Charting” or “Technical Analysis.”
Technical Analysis consists of looking at patterns in market data to identify trends or make predictions. If you watch enough CNBC, you will see this strategy being used by many of the “Super Smart Guys” they interview.
Hmmmm….. they look sophisticated.
Anything that looks this complicated HAS to be important, right?!
Another stock picking site shows guys with twelve screens……
Those guys have TWELVE computer screens. TWELVE! How could someone with only ONE computer screen possibly compete?! I only have TWO screens in my office….
But there is one teensy-weensy problem with all of these investment theories: a total lack of evidence that they actually work.
“An October 2009 study by New Zealand’s Massey University tested more than 5,000 technical analysis strategies in 49 different countries. The result? Not one strategy generated returns that aren’t predicted by chance. Let me repeat that. Not one.”
-Anand Chokkavelu, CFA
Or put another way,
“A monkey pointing at random stocks in the Wall St. journal will experience as much stock picking success as someone using technical analysis.” -David Kennon
Warren Buffett has his own take on it as well: “I realized technical analysis didn’t work when I turned the charts upside down and didn’t get a different answer.”
Ouch.
“Ok, Dave. So all this stuff I hear about ‘stock picking systems’ are a bunch of malarkey. What’s the big deal?”
The big deal is that A LOT of people believe this stuff.
There are too many people across this country pegging their retirement hopes and dreams on stock picking systems that don’t work.
So, if you see something on your computer screen about Free Commodity Market Tips or The Penny Stock Egghead-Retire a Millionaire………
Don’t click on it!
But I have great news! Utilizing a balanced and diversified portfolio of stocks and bonds, while keeping a long-term, disciplined focus, is an incredibly powerful and time-tested way to keep your money working for you. Don’t make this more complicated than it is!
Be Blessed,
Dave