10 Silly and Dangerous Things People Say About Stocks

“Nature never deceives us; it is we who deceive ourselves.” – Rousseau (Émile, 1762)

Peter Lynch was the most successful fund manager in the world from 1977 to 1990, when he ran the Fidelity Magellan Fund. The fund grew from $20 million to $14 billion in assets under his leadership, and he walked out on top. Just before he retired, he wrote a best-selling book titled “One Up on Wall Street: How to Use What You Already Know to Make Money in the Market.”

And he has probably bought and sold more stocks than anyone else on the planet. I can’t think of anyone more qualified to make a list of the 10 silliest (and most dangerous) things people say to justify their bad stock-market decisions.

So, without further ado, here’s a quick look at Peter’s list — along with my comments on each one:

1. “If it’s gone down this much already, it can’t go much lower.”

I know that you’ve said this to yourself during the last two major downturns. You said it on Lucent. On Cisco. Sun. AOL. Enron. WorldCom, etc. How many times does an investor have to say this before he learns that it makes no sense? Outside of zero, there is no rule for how low a stock can go. The best advice I can give here: If you catch yourself saying this, it’s time to get out.

2. “You can always tell when a stock’s hit bottom.”

Nobody knows when a stock will bottom — so don’t try to guess it. Instead of trying to catch a falling knife, it’s much safer to let the knife hit the ground … and let it wiggle around a bit to be sure … and then pick it up.

3. “If it’s gone this high already, how can it possibly go higher?”

If you want to make 10 times your money, you can’t sell before the stock goes up 10 times. But nearly all investors do sell the big winners early because of this faulty logic. The only way to make real money in stocks is by letting them go higher — by not taking a profit early. It’s hard to do. But you’ve got to let your profits ride.

4. “It’s only $3 a share; what can I lose?”

What can you lose? You can lose 100%. Whether a stock is $3 or $50, if it falls to zero, it’s a 100% loss. If it falls to 50 cents, it’s not much better. Three bucks is no guarantee of a bargain. Resist the urge; it’s dangerous. You can still lose it all.

5. “Eventually, they always come back.”

I’m heard that a lot during the dotcom bust. It’s as if WorldCom, Enron, Global Crossing, and all the dot-coms were some kind of fluke. Fact is, they don’t always come back. If you catch yourself saying this about one of your stocks, it may well be time to get rid of it. Make sure you’re using your trailing-stop-loss strategy here. 

6. “It’s always darkest before the dawn.”

For the past several years, gold has done nothing but fall in price. But every year, somebody is saying “It’s always darkest before the dawn.” As Peter Lynch says, “Sometimes it’s darkest before the dawn, but then again, other times it’s always darkest before it’s pitch-black.” If you’re saying this — and you really believe it — please be absolutely certain that you’re not just rationalizing a bad decision.

7. “When it rebounds, I’ll sell.”

I’ve heard this phrase hundreds of times. Yet, I’ve never seen anyone follow his own advice here. When the stock rebounds, they decide there’s nothing wrong with it and they keep it. If it never rebounds, they keep it. The reason people do this is that they don’t like to admit they’re wrong. So, somehow, by holding a losing stock instead of selling it, there’s still a chance that they’ll be right on this loser. Usually, they’re not. If you find yourself in this boat, your best bet is most likely to sell immediately.

8. “What, me worry? Conservative stocks don’t fluctuate much.”

There isn’t a stock on the planet that you can afford to ignore. And as we’ve learned during the stock-market shellacking of 2008-09, even blue chips can get clobbered. This phrase justifies the decision to not pay attention to your investments. That’s a bad idea. It’s your money. It’s worth a little attention.

9. “It’s taking too long for anything to ever happen.”

I hear this phrase all the time. Investors want action. But think about this: A 12% annual return is about 1% a month. That’s a great return, but there’s no action. You don’t need action. Be patient. Lynch says it takes remarkable patience to hold on to a stock that everyone else seems to ignore. Most of the money he makes on a stock, he says, is in the third or fourth year of owning it.

10. “Look at all the money I lost because I didn’t buy it!”

Lynch says this thinking “leads people to try to play catch-up by buying stocks they shouldn’t buy, if only to protect themselves from ‘losing’ more than they’ve already ‘lost.’ This usually results in real losses.” Have you made any of these statements — or statements like these — in the past year?

Always remember: In the long run, it is much easier — and ultimately less painful — to correct a bad decision quickly than it is to continue searching for emotional justification as your portfolio continues to shrink.

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Wealth Building Secret #2: Earn More Than You Spend

“I didn’t want to be rich, I just wanted enough to get the couch reupholstered.” – Kate (Mrs. Zero) Mostel

If you continue to get up early and read Ray's Wealth Wisdom, your income will climb. How do I know that? Because the world is starved for ambitious, hardworking, and focused people. Waking (and getting to work) early gives you a head start day after day, month after month, year after year. That adds up. By charging your batteries with Ray's Wealth Wisdom (Seven Years to Seven Figures), your energy will always be high and your efforts razor-sharp — focused toward achieving your goals.

Even a modicum of extra effort will give you enough extra income to become wealthy eventually. The best-selling book “The Millionaire Next Door” (by Thomas Stanley and William Danko) documented that. If you are satisfied being among the “lumpen capitalists” (see “How Rich Do You Want to Be?” below), the secret is to spend less than you earn, invest those extra savings over a long period of time, and let the miracle of compound interest do the rest.

But you probably don’t want to wait 30 or 40 years. And you may not be satisfied with a mere $500,000 to $1,000,000 in net worth. If so, you are going to have to do the following:

* Learn (and eventually master) a financially valuable skill.

* Use it to position yourself as a profit maker.

* Secure for yourself a fair cut of the success you create.

This will give you — almost from the start — an above-average income. And that income will increase as you get better at what you do. But no matter how high you boost your income, you won’t acquire wealth unless you learn to spend less than you make. For it is the money we save, not the money we make, that determines our wealth.

That’s what I’d like to talk about today: how to avoid the very natural and deceptively powerful impulse to spend more as you make more.

If you have enjoyed a growing income, you already understand (all too well) what I’m talking about. Make more money and things get better: your car, your clothes, even (and most expensively) your home address. That’s fine so long as there is a limit. But for many (if not most) income builders, the desire to spend is always two steps ahead of the ability to earn. If you fall into that trap, you will have the accoutrements of wealth but never its most valuable benefits: financial peace of mind and the freedom to stop working.

Fat people consume more calories than they burn. Poor people spend more money than they earn. Getting thin and getting wealthy are the two easiest things you can do — at least in theory. The hard part is the mental discipline.

We’ll talk about dieting some other time. Today, I want to give you one powerful trick that will give you a wealth builder’s mind-set.

It’s a technique I stumbled upon many years ago that has been a great help in my financial success. It has allowed me to get richer in good times and bad, when my ideas were working and when they were not, when the economy boomed and when it stalled. It’s something you can do for yourself. Something that will change you in a subtle but powerful way so that you will never have to worry about being poor again. It’s the financial equivalent of a diet pill that would make it impossible to ever gain back a pound of lost weight Wouldn’t that be nice!

This came to me about 20 years ago, when I first was introduced to the teachings of Jim Rohn. Jim was big on "the numbers tell the story". He explained that Las Vegas casinos complete a profit and loss statement hourly! Why? Because of all the activity, even a little neglect could spell disaster. So I decided to really focus on my numbers.  Every day after my business opened, I’d count the money that came in. Then, I started doing something that I’ve continued to do to this day.

I took out a sheet of paper and tallied up the value of everything I owned and everything I owed. There was an 8-year-old car that was worth about $1,500, some cheap jewelry I had bought for my wife that I could hock for maybe $200, and a couple of inexpensive (but actually good-quality) oil paintings I’d bought that might get me $50 each in a garage sale. That was about it. Except, of course, for the sweet green cash that was piling up in my mind each day as my fledgling business paid back its start-up capital and went on to earn thousands and then tens of thousands of dollars.

When I started this little scribbled list, my financial assets were overshadowed by my debts and liabilities (credit-card debt, some old student debt, a car loan on that piece of junk vehicle, etc.). The bottom line was bright red. But since I had a cash-positive business, things were getting better every day. The hole I had dug for myself was getting less and less deep. In a matter of months, I could poke my head above ground level and see a future for myself. A year later, I was among the lumpen lot!

It wasn’t a straight march up. A year later, I was a partner in about a dozen operating businesses and suddenly found myself — for several scary months — more than a million dollars in the hole. If things hadn’t turned around, it would have been very bad for my family.

Those two experiences — making that good, fast money and then almost losing it — inspired me to adjust my habit of adding up my wealth. The twist was this: I promised myself that I would do whatever it took to make sure that each new total — each new bottom-line number — was larger than the one before. Since I’d gotten into the habit of running my numbers on a monthly basis, my vow meant that I was committing to becoming wealthier every month.

That may seem like a simple promise, but it had a profound impact on the way I thought about myself, my job, my business relationships, and wealth building itself. It made me see — almost instantly — that many of my habits (including some of my spending habits) were financially unhealthy. It also gave me, at times, the panicked energy I needed to do something drastic — to start something new or end something that had gone wrong . Plus, it gave me an underlying determination to get a little bit richer every day — and this, as Robert Frost said, has made all the difference.

You might want to do the same thing:

* Make it a habit to recalculate your net worth on a monthly basis.

* Then promise yourself you’ll do what it takes to make that bottom line always bigger than it was before.

You’ll have to be scrupulously honest. The temptation to meet your goal by overvaluing a particular asset may be strong, so be aware of it and resist it.

Counting your money is an unseemly activity. You probably don’t want to do it in front of anyone else. And you certainly don’t want to talk about it. But it will remind you of the progress you’re making — and that will give you the mental strength to continue. Ultimately, it will make spending less than you earn automatic. And that means your future wealth will be guaranteed.

Don’t dismiss this little technique because it’s simple. All the best and most powerful things in life are simple. This WILL make a difference. Do it.$

[Do you know how Facebook and Google became the most powerful companies in the world?

It’s NOT helping you share pics of last night’s dinner...
It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

This is why using the Traffic Authority business system is the ultimate way to make extra income in your business…
 

Click here to watch the video and start your own premium traffic business today!]