It is almost impossible to make good decisions using out-of-date information. Imagine trying to drive around a fast-growing city like Las Vegas with a map that was printed in 1980. Similarly, investors should be very careful about relying upon old sayings about the stock market - sayings that are so old that they have transitioned from helpful advice to potentially harmful myth. (Learn how to stop using emotion and bad habits to make your stock picks. Check out How To Avoid Common Investing Problems.)
You Cannot Beat the MarketAcademics have spent a lot of time trying to convince people that it is not possible to beat the market. Fortunately for investors, the models that support those analyses are simplified versions of reality with real flaws. In actual practice, people can and do regularly beat the market. It is not easy, and nobody beats the market every year, but it does happen and there are ample studies that show that following simple value-oriented strategies can lead to consistent market-beating returns.
To read the full piece, please go to:
http://financialedge.investopedia.com/financial-edge/0910/Investing-Myths-That-Need-To-Go.aspx
3 comments:
During the 90s, my stocks were compounding at 40% or so per year for 5-6 years. Tech stocks? No, I bought the drug and medical stocks in 93-94 when everybody was tossing them overboard, afraid that the Clinton health care "reform" was going to decimate them. When that plan collapsed in Congress, it was off to the races. I never came close to doing that again, but I still do OK by picking over Mr. Market's bargain bin.
So ... whatcha buying now?
Once again, healthcare is cheap. As Jeremy Grantham and others have stated, a lot of the big-cap multi-nationals are cheap. The trouble is, they may get cheaper and we may have to wait awhile for a bounce-back. When the market sells off, I nibble some more at those companies I am fairly confident will survive (unless the end of the world really is here, in which case nothing matters anyway.) It will likely be awhile before the next bull market arrives to expand P/E ratios again. Pfizer's P/E went from 15 to 50 from '94 to '99, and that was the rule rather than the exception. We don't have a market like that now so returns are bound to be less irrationally exhuberant until (and if) a new bull gets started. I look at things like ABT, CL, PEP, KO, BDX, etc when the market drops. They will pay me to hang on to them until the price rises. I also look at merchandise that is defenestrated due to temporary bad news. I made a good gain on IDCC when the market dumped it after a bad quarter. But it's nothing like the way it was during the go-go 90s....
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