We can’t tell you how many investors we’ve met who don’t make money because they overthink they process.
That’s right, overthink.
We can hear you saying, “Wait a minute! This stuff is complicated! You need to understand all kinds of hard stuff like lagging economic indicators and price-to-book ratio and how to interpret moving averages. I don’t have time to learn that stuff now!”
You’re right, you don’t have that kind of time.
We’ve been teaching people how to invest for several years now, and we’ve run across numerous investing systems that demand customers not only purchase products, but then make them a) struggle to use the product and b) struggle to understand the investing system behind the product.
You know what happens next: The customer gets frustrated and quits. Sometimes they get annoyed with the company that sold them the product, but more often, they just take the blame themselves. “I’m too busy” or “I just don’t understand this stuff.”
We’re tired of seeing that.
We’re also really tired of all these investing systems making everything so flippin’ complicated! Hey! News flash to all these geeks selling their systems: Not everyone is like you! Most of us don’t have dual Master’s Degrees in Electrical Engineering and Applied Economics, like you seem to think we do. We want to learn the basics about the stock market so we can make some money – but all your stochastics and oscillators are just a turnoff.
But there’s really good news for anyone who is turned off by stochastics and oscillators.
Plenty of people who don’t understand that stuff are making money in the market. Lots of money. English majors, theater majors. Heck, folks who never graduated from college.
The Dancer Who Made Millions In The Market
One of the best stock investors of all time was a professional dancer with no formal stock market training. In the late 1950s, Nicolas Darvas began with an investment of $25,000, which he gradually parlayed into $2,000,000. Remember, this was in the 1950s, so in today’s dollars, that would be more like $20 million!
Darvas, who routinely traveled around the world for his performances, used stock price and volume tables from Barron’s (often several days old, by the time he received it) and telegraphed reports from his broker. Those were his data sources!
He certainly didn’t use any fancy oscillators or other indicators. He didn’t have the luxury of “back testing” his strategy. He just saw basic fundamentals, like earnings growth, and understood how to read simple price and volume action on a chart. And he was a great success story as an individual investor.
And guess what? Many of those geeky people who like to put layer upon layer of complexity onto their investing? Relying on a few arcane indicators and then debating them endlessly with other geeks in forums? Well, they often don’t make much money, because they’re so focused on nitpicking about the indicators rather than homing in on the simple facets of investing that really do work!
So that brings us back to the first rule for simple investors: Be simple minded.
Understand that to work for you, investing does not have to be as difficult as you think. Simple minded doesn’t mean stupid – in fact, in future posts, we’ll focus on ways of eliminating stupid investing mistakes.
The Simple Minded Investor Is Relaxed
But being simple minded does mean relaxing and knowing that with just a little bit of knowledge and discipline, it’s entirely possible to make money in the stock market. And really, that discipline mostly boils down to dismissing some long-held investing beliefs that are holding you back, and not being afraid to hit that “sell” button on your broker’s Web page!
It’s a brand new approach to stock investing, one that doesn’t rely on opinions from analysts on TV who try to sound impressive. Those guys love to go on TV and appear smart. You aren’t signing their paychecks, though, so they don’t really have your best interest at heart when they rattle of an incomprehensible list of “strategies” the retail investor should follow.
Think back to all the great investors from the pre-computer era. Nicolas Darvas, Gerald Loeb, Bernard Baruch – they relied on a simple set of rules and methodologies. If you have any doubt, read John Boik’s “Lessons From The Greatest Stock Traders Of All Time.” This will give you a nice summation of how old-school traders worked successful without all the bells and whistles. Boik’s other book, “How Legendary Traders Made Millions,” shows how contemporary traders (who have the benefit of computer screening) also invest successfully while still keeping it simple.
So here are a few tips for bringing your mindset to a simpler place as you get started on your investing journey:
- If someone is touting an investment strategy that you don’t really understand, question it! Don’t buy in because a guy from the Ivy League, or someone who’s considered a “guru” tells you it’s foolproof. Maybe it does work for him, and that’s fine. But if it sounds too confusing, it may not be the right approach for you.
- Focus on only a few factors that have been proven to affect stock price. Earnings and sales growth, for example, and price increases on heavy volume. We’ll get more into these in future posts.
- Don’t let yourself get too focused on trying to understand the minutiae before you understand some basics. For example, there are plenty of people who don’t yet understand that the best growth stocks always have increasing sales. But rather than master the basics, like that, they jump ahead and obsess over whether a stock is forming an “ascending base.” That approach makes no sense at all. (And here’s a tip for you “complex thinkers”: If you never in your life learn how to spot an ascending base, it really won’t matter one iota to your investing success! We do understand how to recognize ascending bases – and we can truthfully assure you: It’s not that important for you to recognize!)
- Don’t get scared off by the gang who loves to thump their chests about their complex investing method. “Look at me! This stuff is complicated, and I understand it!” Rest assured that there really are plenty of successful individual investors who are using simpler systems. Complicated doesn’t necessarily mean better.
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