The Brainwashing of the American Investor

The Brainwashing of the American Investor, Steven R. Selengut, 1stBooks, 2002

There are money-making opportunities in the financial markets, but the first thing an investor should do is ignore much of what comes out of "Wall Street." The investor should especially ignore the phone call from the new MBA at a brokerage firm pushing some hot new stock that is supposedly "about to take off." The stock is being pushed because of the size of the commission on any purchases. If the stock is so wonderful, does the broker have it in his or her own portfolio? Next week, some other stock will be "about to take off." The investor can also expect a call from a broker saying that their mutual funds or municipal bonds perform much better than what the investor is in now. How about a switch? More transactions equals more commissions. Wall Street does not do anything for free. Even if something sounds "no fee" or "no-load," the brokerage will get its fee somewhere.

The investor should certainly keep up with the business news, but do not spend hours and hours every day at it; that will not leave any time for actual trading. Go through the Sunday paper and come up with a list of buying possibilities. These are May Buy stocks, as opposed to Will Buy. Just some basic information is needed about each stock, like its 52-week high/low and yesterday's close. If a stock is down at least 20% from its 52-week high (not 19.5%), move it onto your Will Buy list. When choosing a broker, is it really worth going through several minutes of Press 1 and Press 2, before you reach a human, while the price of your stock goes in the wrong direction, all to save a few dollars on the commission? Pay the extra commission, and choose a broker where a human really is just a phone call away.

It is easy to buy a stock, but much harder to know when to sell it. If your stock rises from 20% to 10% below its 52-week high, sell it. Do not get greedy, and wait for it to rise just one more point; it may never come. There will be other opportunities. Besides, a double digit profit in the stock market is nothing to scoff at. On the other hand, if your stock continues to slide into oblivion, know when to cut your losses. There will be other stocks.

This book seems to be much easier to understand than the stock trading "systems" advertised on TV and in the Business section of the local book store. The experienced investor may kick themselves, realizing the money they have given to Wall Street, for little or no reason. It is also recommended for novice investors, and even non-investors (like yours truly).