Stock Investors

Stock Investors

 

 

wp-content-uploads-2013-01-robertburan1 Stock Investors

 

By Robert Buran

 

 

Stock Investors, a Psychologist’s Perspective

 

Stock Investors come and all sizes, shapes, styles and colors!  And some stock investors are very successful and some are not so successful.  How does the psychological profile of these two groups differ?

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Before I became a professional trader I was a psychologist.  And so naturally I am not just interested in the obvious attributes of stock investors; I am also interested in the psychology of different investors and what really makes them tick.  I want to look under the hood of stock investors, probe their minds a little, and understand what makes some successful and what makes others less than successful.  I want to know more about the psychology of stock investment.

Not too long ago I read an article in the New York Times about John MacAfee, the founder of the MacAfee anti virus Software Company.  There are things in John MacAfee’s story that shed some light on stock-investors-3 Stock Investorsunderstanding something about the psychology of investment.

Quite surprisingly, given his corporate position, Mr., MacAfee was not into making investment decisions himself.   Although no longer associated with that company, Mr. MacAfee was and is a brilliant businessman and entrepreneur who, it seems, for a couple decades, could do no wrong in his business dealings.

Only a very short time ago Mr. MacAfee had a net worth of well over 100 million dollars.  Today that net worth is about 4 million.

So what happened?  Well one of the major reason’s for Mr. stock-investors-2 Stock InvestorsMacAfee’s problems was he made a very common mistake that many other wealthy people have made.  Although John MacAfee was furiously independent in his business thinking, when it came to investing his millions he let others do it.   Rather than practice “do it yourself” investing he turned investment decisions over to “financial experts” oftentimes people who call themselves brokers or financial advisers.  And in MacAfee’s case one of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.

Obviously Mr. MacAfee got bad advice and most people now know that Lehman Brothers was one of the first cards to fall in a financial deck that toppled in 2008.  The resulting fallout brought the world economy to its knees and five years later we are still digging out of the resulting mess.

Mr. MacAfee also got burned in the real estate collapse as well.  And I am certain he got a lot of advice on real estate investment also.  Like stock investors, real estate investors in 2008 were also told their investments were safe.  These prices cannot go down and increasing demand and increasing prices are almost a given.

This is the manure spread by financial advisers, brokers and people in government prior to the crash of 2008.  And 10s of millions of Americans, including Mr. MacAfee, bought into it.

So what is this psychology of investors, and not just the psychology of stock investors, that led to John MacAfee’s downfall and the downfall of so many others in the crash of 2008?

 

Stock Investors and Independent Thinking

 

Years ago I wrote a book, “How I Quit My Job and turned $6000 into a Half Million Trading”.  

 

Basically what I had done was to start with $6,000 of borrowed money.  I was poor and got a $6,000 chattel mortgage from my bank by putting every thing up I owned, literally the shirt on my back, as collateral to get the loan. This flew in the face of logic and the sound financial advice of almost everyone.

Tstock-investors-4 Stock Investorshen by taking about 10,000 individual trades, I realized well over 100% annual returns on my investments for six consecutive years.  I had to take money out of the account to live on, but I still made a half million dollars in six years having started with only $6,000. Then I wrote the book, published my broker statements and got some attention.

I am not trying to blow my own horn here, but this experience got me to thinking a lot about the psychology of investors, risks and return as well as “expert opinion”.

I was not an expert; I developed my basic plan on a yellow legal pad on a skiing trip!  And understanding the plan required an understanding of 5th grade math and no more.  No I was not an expert.  But in some ways I was light years ahead of the experts.

 

Four Specific things Stock Investors can do to Improve Returns and Performance

 

I am not going to try to rewrite that book in this article, but there were four important noteworthy things I did that contributed to my success:

1) I ignored just about everybody’s advice and I developed my own strategies for trading.  My strategies violated many sacred rules of trading financial instruments.

2) I never held on to anything more than three days.  This kept me from being killed in the marketplace.  If I bought something and it started going for the toilet, I was out of it while I still had some money.  There is a lot of safety in trading the short term.

3) I traded a lot of different markets.  There is also safety in diversification.  Things can go bad with one or two things, but it is rare that things go wrong with everything.  On one memorable day when all hell broke loose I lost $18,000 in bonds, but made $24,000 in stocks.  Diversification saved my butt.

4) I did everything myself.  I developed the strategies myself, I did the trading myself and everyday I counted the money myself.

 

Of all these strategies the most important is doing it yourself.  I was once fired from a good job because my boss said I was too much of a “lone wolf”.  But you have to be a lone wolf to be a good stock investor.  Contrarians may make bad employees and bad spouses, but they make excellent stock investors.  One of the truths of stock investment and trading is that the markets tend to destroy the majority following conventional wisdom and reward the minority following contrarian thinking.

I travel a much less exciting road today regarding investing.  I do not leverage my investments as much as I used to and I only buy stocks and never go short.  That is correct, I no longer short stocks; in the year 2013 probability clearly favors rising prices.  But I still diversify and I presently take trading signals in about 70 plus diverse stock markets .

I do a lot of programming now, but my trading systems are not that much different from what I developed on a yellow legal pad on a skiing trip 25 years ago.  That old stuff still works.  And I still do not keep anything more than three days.stock-investors-5 Stock Investors

I have fun now is putting these trades up on this web site every day.  I keep it low key and gear it to small investors.  I do not make money everyday but I do make money the majority of days.    This web site is kind of my way of saying “in your face” to the kind of moronic advise that got John MacAfee in trouble.

In order for stock investors to be successful they must shut out the noise and avoid the investment pitfalls that come from listening to others.  Successful stock investors must practice do it yourself investing. Simple logic is still a viable investment strategy and lone wolves still make money.  Diversification really worksShort term trading is one of the most logical and easiest ways to increase profitability while reducing risk.  In order to be a successful stock investor you must develop your own strategy, ignore the experts and DO IT YOURSELF!    

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.