May 12th, 2010 
andrea 
Photo by Katrina Tuliao
These OBSERVATIONS come from my experience as a Series 7 broker and financial planner, and as an investor in the stock market. They are ONLY my opinion, so don’t follow them unless you happen to believe them, also.
1. Generally, the current price of the stock market average (like the Dow) already reflects the news that is known and the trends that are occurring.
That’s why a stock’s price sometimes/often goes down on the day that earnings’ reports are officially released. And, the market has factored in the current trend of interest rates — and sentiments thereof.
2. It’s essential to notice and understand what is CURRENTLY motivating the market and the brokers/advisors/fund managers.
Sometimes, it’s a question about the direction of interest rates. Sometimes, it’s a preference for blue chips vs small cap stocks. Sometimes, it’s waiting for an election or other political event. Sometimes, it’s a quick attempt to window dress a fund’s holding at quarter’s end. Sometimes, it’s the industry stock group’s flavor of the month. You need to be aware of what is motivating/driving those who purchase a LOT of stocks — understand how they think, and you’ll be less surprised. What motivates them changes with the seasons!
3. The stock market doesn’t always appear to behave logically, but if you understand the current EMOTIONAL thinking in regards to the market, the market makes PERFECT sense.
The market’s current price is a result of logic plus emotion. For example, earnings reports plus expectations by analysts. Interest rate changes plus concern for their effect on the economy. And so on. There is ALWAYS an emotional side that stretches the logic. Don’t rely just on logic/facts.
4. Various market ratios and historical norms are very important to understand; just don’t get wedded to them.
For example, trailing P/E’s currently (January 97) are darn high. Yet bullish sentiment is also extremely high. Respect the sentiment (don’t fight the tape, as they say), even if it means logic/reality is stretched beyond your comfort level.
5. Understand that there are more international influences on the US stock market than ever before.
So, if the dollar is increasing in value, and investors worldwide feel that the US stock market is reasonably safe, they’ll invest more than normal in the US stock market, thus increasing prices. Also, remember, that our PE averages are much lower than the Japanese stock markets have been, so our stocks look like a bargain to some non-US investors, just as a mansion in Arizona will look like a bargain to a Southern California homeowner.
6. Understand that there is usually one major trend that underlies the market’s activity and direction, often for 5, 10 or 20 years.
The price of oil (at least in the 70s/80s) was a prime example. The current baby boomer bulge is behind some of the market’s current 5-6 year bull market (many of them are investing, being in their prime earning years; and many have given up on the idea of Social Security and have taken matters into their own hands). And the fact that computers and technology are changing how almost all business does its business is key. And, the decline of unions and relocating of manufacturing to other countries are other profit-building trends, resulting in a higher stock market.
7. Understand that a firm’s ability to hear, learn, respond and continually reinvent is now a REQUIREMENT for sustained profitability and viability.
With a much more informed and educated consumer, companies must respond to their outspoken needs instead of just doing the same old thing. Value sells today; hype and marketshare is less effective. If you look at how much a company is adding value to their customer’s lives/businesses, then you’ll know better if it’s wise to invest in that company — look beyond the profit margins — look to see how well the customers are being responded to, innovated for and served. Value delivered to the customer results in MIND share; much more important than mere MARKET share.
8. Don’t forget that investing in You, Inc. (yourself) may be an even better investment than the stock market.
I’m a believer that each person has a chance to earn a lot of money on their own vs relying on the stock market to do all of their ‘investing’ for them. If a blue chip company brings you an average return of 10-13% a year, that’s not bad, but ask yourself if you put $10,000 or $100,000 into yourself, your eduation, your training, expert help, a coach, a small business, an invention, a better computer, etc., what kind of return are you looking at? It’s often an annual return of 50% to 1000%!! Don’t be afraid to invest a percentage of your portfolio in yourself and your interests.
9. Start playing the stock market with funds you can afford to lose and won’t be emotionally upset or financially ruined if you lose them all.
Then, as you get a ‘feel’ for the market and wish to invest more, do so, but pull out when you’re feeling anxious. This is not the most commonly expressed advice, but I feel strongly that you should ENJOY investing in the stock marrket and move through your learning curve with a minimum of risk. Ease into it, vs jumping in and hoping to make a killing. Better to win some and lose some than to HAVE to win.
10. Get to know certain stocks and play them.
It’s my view that stocks have a personality, just as the folks who invest in them do. Stocks have a rhythym, cadence, and they have mood swings, just like your cat. Get to know your cat, and you’ll enjoy this. It will help you intuitively invest better, whether you’re buying long or short.
Thomas J. Leonard, often known as the father of coaching, passed away suddenly on February 11th, 2003. His seemingly endless ideas included the creation of CoachVille, and the International Coach Federation, as well as numerous books, teleclasses, programs, and workshops on coaching. One of Thomas’ signature creative structures were these top ten lists, a way of organizing his thoughts in an easy to read format. Visit Best of Thomas to learn more about the many different works of Thomas Leonard
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Read the entire article from the source: Top Ten.
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