Strategy Lab Open
I am anxiously awaiting the start of the Strategy Lab Open. This will be the first time for me to put my investment strategy to the test against other highly educated investors on a stage such as this starting on February 1, 2008. My portfolio and blog can be seen and tracked here. Generally, my investment methods are for "safer", lower risk investing that takes a little time to show returns. Hopefully, I will be able to take enough risk at times to create the big returns needed to show well in a competition like this. So follow along with me and learn the basics of my common sense investing strategies!
Common Sense Makes Money
My investment theory is simple in nature, but, not so simple to follow for people who fall victim to popular sentiment, experts, and media hype. It involves good old fashion common sense. Common sense can't be learned in a college curriculum, but can be worked on through rationalization in real life. Think about your own life and how many times "experts" or the media told you to invest in something even though you knew it didn't make sense. Did you follow the herd anyway or did you use your common sense to stay away? Common sense enabled some investors to avoid the slaughter of dot-com stocks that started in early 2000 and is making some investors a lot of money in gold and silver as the dollar is sacrificed by the Fed. Lack of common sense investing has led investors to huge losses in mortgage backed securities as all of this "junk debt" is rearing its ugly head.
What Prevents Common Sense Investing?
Far too often people are easily swayed by popular opinion, "expert" analysts, or even worse the latest headlines. It is like a self-fulfilling prophesy when an investor hears negative remarks by fellow investors, believes in them, and begins to make bad investment decisions because of it. The same bodes true for investors that buy into "hype" and foolishly positive market sentiment that causes them to believe that they can do no wrong. If you have made a decision on an investment and believe that the reasons for making the investment are still sound use your common sense and stick with it. Next is an article I read recently, Max and the hot dog stand, that really hammers home the need for common sense investing.
Max and the Hot Dog Stand
Max worked seven days a week building the business of his little hot dog stand. He kept the place sparkling clean, offered terrific hot dogs and gave each customer a dose of friendly banter. His sales grew and grew, he reinvested his profits, hired more employees, extended his operating hours and even advertised on radio: "Max's hot dogs.... Fresh, fast and fabulous."
Business kept growing at a rapid pace. Then one day Max's son came home from college, where he was studying economics. The boy said, "Dad, don't you know there's a recession sweeping the country? You'd better ease off the expansion, fire some of your employees, reduce your operating hours and stop advertising on the radio."
"But," Max said, "Business is terrific."
"Listen to me," said the son, "This recession is real, and you'd better recognize it."
So, Max cut back on reinvesting in the business, fired many of his employees, reduced his operating hours and stopped advertising on the radio.
A few months later, the boy called from college and asked how the hot dog business was doing.
"Well," said Max, "you were right. Business is terrible. I'm glad you told me how to react to the recession."
Full Disclosure: All of the stocks that I use in this contest are stocks I am currently buying, selling, or considering buying and selling myself.
Easy Money Management's editorial goal is to provide a forum for personal finance and investment ideas. My blogs and other features should not be construed as investment advice. An investor's best course of action must be based on individual circumstances
I am anxiously awaiting the start of the Strategy Lab Open. This will be the first time for me to put my investment strategy to the test against other highly educated investors on a stage such as this starting on February 1, 2008. My portfolio and blog can be seen and tracked here. Generally, my investment methods are for "safer", lower risk investing that takes a little time to show returns. Hopefully, I will be able to take enough risk at times to create the big returns needed to show well in a competition like this. So follow along with me and learn the basics of my common sense investing strategies!
Common Sense Makes Money
My investment theory is simple in nature, but, not so simple to follow for people who fall victim to popular sentiment, experts, and media hype. It involves good old fashion common sense. Common sense can't be learned in a college curriculum, but can be worked on through rationalization in real life. Think about your own life and how many times "experts" or the media told you to invest in something even though you knew it didn't make sense. Did you follow the herd anyway or did you use your common sense to stay away? Common sense enabled some investors to avoid the slaughter of dot-com stocks that started in early 2000 and is making some investors a lot of money in gold and silver as the dollar is sacrificed by the Fed. Lack of common sense investing has led investors to huge losses in mortgage backed securities as all of this "junk debt" is rearing its ugly head.
What Prevents Common Sense Investing?
Far too often people are easily swayed by popular opinion, "expert" analysts, or even worse the latest headlines. It is like a self-fulfilling prophesy when an investor hears negative remarks by fellow investors, believes in them, and begins to make bad investment decisions because of it. The same bodes true for investors that buy into "hype" and foolishly positive market sentiment that causes them to believe that they can do no wrong. If you have made a decision on an investment and believe that the reasons for making the investment are still sound use your common sense and stick with it. Next is an article I read recently, Max and the hot dog stand, that really hammers home the need for common sense investing.
Max and the Hot Dog Stand
Max worked seven days a week building the business of his little hot dog stand. He kept the place sparkling clean, offered terrific hot dogs and gave each customer a dose of friendly banter. His sales grew and grew, he reinvested his profits, hired more employees, extended his operating hours and even advertised on radio: "Max's hot dogs.... Fresh, fast and fabulous."
Business kept growing at a rapid pace. Then one day Max's son came home from college, where he was studying economics. The boy said, "Dad, don't you know there's a recession sweeping the country? You'd better ease off the expansion, fire some of your employees, reduce your operating hours and stop advertising on the radio."
"But," Max said, "Business is terrific."
"Listen to me," said the son, "This recession is real, and you'd better recognize it."
So, Max cut back on reinvesting in the business, fired many of his employees, reduced his operating hours and stopped advertising on the radio.
A few months later, the boy called from college and asked how the hot dog business was doing.
"Well," said Max, "you were right. Business is terrible. I'm glad you told me how to react to the recession."
Full Disclosure: All of the stocks that I use in this contest are stocks I am currently buying, selling, or considering buying and selling myself.
Easy Money Management's editorial goal is to provide a forum for personal finance and investment ideas. My blogs and other features should not be construed as investment advice. An investor's best course of action must be based on individual circumstances
I loved the Max and the Hot Dog Stand story. What a great illustration of how people who buy into the recession-related headlines end up perpetuating the slowdown.
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